In an effort to retain employees, companies have instituted “pay or stay” agreements as a condition of employment. These agreements are often referred to as training repayment agreement provisions, or “TRAPs”. They require an employee to reimburse their employer for certain expenses incurred as a result of their employment if the employee leaves before a specified point in time. These expenses can include relocation costs, specialized training, and other incentive investments such as bonuses. In practice, employees can either remain until the agreed upon period ends or reimburse their employer if they choose to pursue other opportunities before the predetermined date. Recently, these provisions have come under scrutiny from state and federal regulators.

The Employer Perspective

Stay or pay agreements emerged as a practical response to real business needs, particularly in industries where training is expensive, turnover is high, or specialized skills are difficult to find. Many organizations viewed the logic as straightforward. If they invested heavily in developing an employee’s capabilities, they wanted assurance that the employee would remain long enough for the company to see a return on that investment. In positions that require months of onboarding, technical certifications, or proprietary training, the risk of an employee leaving immediately after receiving that benefit felt too great to ignore. These agreements were seen as a way to reduce early-stage turnover and to ensure that the company received the benefit of its investment, especially given that it often takes six to twelve months for an employee to fully integrate into the workplace. Employers also used these agreements to deter competitor poaching and to support workforce planning, since planning for the future becomes difficult when turnover is unpredictable. From a business perspective these actions appear reasonable.

The Scrutiny

Although businesses implemented pay or stay agreements with legitimate intentions, many states now view many of these provisions as an unfair burden on workers. There is growing concern that repayment obligations tied to continued employment function as restraints on worker mobility, particularly when the training primarily benefits the employer or is necessary to the employee to perform the job. What employers see as protecting their economic interests, lawmakers increasingly view as coercive debt. The underlying business concerns remain, but law makers are enacting protections to address agreements they consider oppressive.

State Action

New York and California are two states that have enacted laws to safeguard employees against TRAPs.

New York

On December 19, 2025, Governor Kathy Hochul signed the Trapped at Work Act. The law prohibits employers from requiring a worker or prospective worker to execute an employment promissory note. By statute, an employment promissory note includes any instrument, agreement, or contract provision that requires a worker to pay the employer, or the employer’s agent or assignee, a sum of money if the worker leaves employment before a stated period of time. The act defines “worker” broadly to include employees, independent contractors, interns, externs, and volunteers, and it applies to companies of all sizes.

California

California’s law prohibiting stay or pay agreements took effect on January 1, 2026. The law makes it generally unlawful to require workers to repay training costs, sign on bonuses, relocation fees, or similar expenses if they leave employment, subject to limited exceptions and procedural requirements. Agreements entered into on or after January 1, 2026, must comply with the new standards or risk being treated as void and against public policy. The exceptions that remain are narrow and come with strict requirements, including separate written agreements, a five-day attorney review window, interest free prorated repayment terms, and protections that prevent claw back risk during the retention period.

Other states, including Colorado, Wyoming, and Connecticut, have also enacted prohibitions on TRAPs. It is likely that additional states will follow.

What Can Employers Do

With the growing scrutiny of stay or pay agreements, employers can take several steps to protect themselves:

• Evaluate current agreements to ensure they do not appear involuntary and revise them if necessary.
• Avoid language that resembles punishment for resignation or termination.
• When drafting these agreements, ensure that the stay period and repayment amount are reasonable. Identify alternative strategies to retain employees.
• Monitor legislation to remain compliant with national trends.

How CMBG3 Can Help

Stay or pay agreements, which are now under heightened scrutiny, require careful drafting, and clear communication. Our team is here to help you address these or various other employment issues.

Nathanael E. Wright is a partner at CMBG3