New York State Enacts ‘Trapped at Work Act’ to Prohibit Use of Employment Promissory Notes

Effective immediately, New York Labor Law prohibits use of certain “stay-or-pay” provisions as a condition of employment.

Governor Kathy Hochul signed the Trapped at Work Act (Act) on December 19, 2025, which amends the New York Labor Law to limit an employer’s ability to enter into an “employment promissory note” with its workers.

WHO AND WHAT ARE COVERED

An “employer” is defined broadly to include any individual or entity (including subsidiary) that “hire[s] or contract[s]” with a worker to work for the employer; or provides training to workers. “Worker” is similarly broad and includes employees, independent contractors, interns, externs, volunteers, apprentices, and sole proprietor service providers. Individuals “whose sole relationship with the employer is as a vendor of goods” are excluded.

An “employment promissory note” is defined as “any instrument, agreement, or contract provision that requires a worker to pay their employer, or the employer’s agent or assignee, a sum of money if the worker leaves” the job before a certain amount of time has passed. This explicitly includes “reimbursement for training provided to the worker by the employer or by a third party.” However, it excludes the following:

• Repayment of money that was advanced to the worker, unless the money was used to pay for training related to the worker’s employment
• Payment for property that it has sold or leased from the employer to the worker
• Agreements that require educational personnel to comply with sabbatical leaves
• Agreements entered into as part of a broader collective bargaining agreement

PROHIBITION

The Act prohibits employment promissory notes as a condition of employment. The Act states that conditioning employment on acceptance and execution of an employment promissory note  is against public policy, unconscionable, and unenforceable. The invalidity of an employment promissory note, however, will not affect other provisions of an employment agreement.

ENFORCEMENT AND PENALTIES

The Act does not create a private right of action for workers, but it allows the New York State Department of Labor (NY DOL) to administer civil penalties between $1,000 and $5,000 for each violation. The law also allows workers to recover attorney fees if they successfully defend against enforcement of any prohibited agreements under the Act. The Act became effective immediately on December 19, 2025, but it is unclear if there will be any retroactive enforcement.

ANALYSIS AND BROADER TRENDS

While the legislative intent of the Act was to eliminate agreements that require employees to repay employers for the cost of training if they separate from employment before a certain period of time, there is obvious ambiguity in the law. Governor Hochul noted the same in her approval memo, stating “[t]he bill as drafted was ambiguous in important respects” and anticipates addressing those concerns in the upcoming legislative session. But without further amendment, regulations, or guidance, the NY DOL could interpret the Act to prohibit all forms of agreements that require a worker repay a sum of money prior to leaving employment.

New York’s passage of the Trapped at Work Act is part of a larger trend targeting “stay-or-pay” clauses and training repayment agreement provisions (TRAPs) in employment agreements. California, for instance, passed AB 692 in October, which declared any employment contract that contains a “stay-or-pay” clause to be void and contrary to public policy. Unlike the Trapped at Work Act, AB 692 does create a private right of action, allowing workers to bring forward lawsuits against their employers for either injunctive relief or the greater figure of $5,000 or actual damages.

Further, AB 692 contains a different set of exemptions than the Trapped at Work Act, including for (1) loan repayment assistance or forgiveness programs; (2) tuition repayment programs; (3) enrollment in an apprenticeship program; and (4) repayment of signing bonuses.

NEXT STEPS

Because the Trapped at Work Act takes effect immediately, employers should take the following steps to comply with its provisions:

• Review existing offer letters, training agreements, and documentation of any repayment provisions.
• Consider utilizing other retention incentives, such as deferred vesting incentives, profit sharing, or bonuses.
• Consider pausing current collection efforts on training repayment notes and other repayment agreements.
• Monitor for any updates that may come through the expected January amendment progress as well as any further regulations and guidance.