Stay-or-Pay Clauses: What's Now Banned in CA, CT & NY
California, Connecticut, and New York now restrict or ban 'stay-or-pay' training repayment clauses in employment contracts. Here's what's void, what's still allowed, and when each law kicks in.
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What Is a Stay-or-Pay Clause, and Why Are States Banning It?
A stay-or-pay clause (also called a training repayment agreement provision, or TRAP) requires an employee to repay the employer—often for training, a signing bonus, or relocation costs—if they leave before a set amount of time. California, Connecticut, and New York have each moved to void these clauses in 2026, arguing they trap workers in jobs through debt rather than through a genuine offer to stay.
Key takeaways
- California's ban (AB 692, Bus. & Prof. Code § 16608) has been in effect since January 1, 2026.
- Connecticut's expanded ban (Public Act No. 26-12) applies to agreements signed on or after October 1, 2026—now about four weeks away.
- New York's Trapped at Work Act takes effect December 19, 2026, after a February 2026 amendment pushed back the original date.
- All three laws target the same pattern: charging an employee money for leaving too soon, whether it's labeled training reimbursement, a bonus clawback, or a "promissory note."
- Narrow exceptions survive in most states: cash advances, property sold to the employee, and collectively bargained terms are usually untouched.
Why Now? The Legal Trigger Behind Each State's Timeline
Stay-or-pay provisions used to draw far less scrutiny than non-competes, largely because they don't restrict where someone can work—they just make leaving expensive. That changed as regulators and workers' advocates reframed TRAPs as a form of coerced debt: an employee who can't afford a $10,000–$20,000 repayment bill effectively can't quit, even without a non-compete on file.
| State | Law | What It Voids | Effective Date |
|---|---|---|---|
| California | AB 692 (Bus. & Prof. Code § 16608) | Training repayment clauses, quit fees, replacement/retraining fees, visa cost recoupment, separation-triggered liquidated damages | January 1, 2026 |
| Connecticut | Public Act No. 26-12 (expands Conn. Gen. Stat. § 31-51r) | "Employment promissory notes"—any agreement requiring repayment for leaving before a set period, including training reimbursement—for employers of any size | October 1, 2026 |
| New York | Trapped at Work Act (S.B./A.B., signed Dec. 19, 2025; amended Feb. 13, 2026) | Requiring an employee or applicant to sign an employment promissory note as a condition of employment | December 19, 2026 |
| Colorado | Narrowed repayment rules (existing wage law amendments) | Certain training-cost deductions from final pay without a signed, itemized agreement | In effect |
California's version reaches the widest set of clauses—it doesn't just cover "training," it covers quit fees, replacement-hire fees, and even visa or immigration cost recoupment tied to an early departure. Connecticut's update is notable mainly for who it now covers: the state previously exempted small employers (fewer than 26 employees) from its promissory-note rule, and Public Act No. 26-12 removes that carve-out entirely.
What Still Counts as a Legal Repayment Arrangement?
Not every cost-recovery clause is void. The exceptions are narrow but consistent across the three laws:
- Cash advances the employer already paid out, structured as a genuine loan rather than a training cost.
- Property sold or leased to the employee—for example, a laptop or vehicle financed through payroll deduction with a real purchase agreement.
- Educational-staff sabbatical terms, a carve-out aimed at teachers and professors returning from paid leave.
- Collectively bargained provisions negotiated through a union contract.
What doesn't survive: repayment tied to a training program's cost, a signing bonus clawback triggered by an early exit, relocation-cost recoupment, or any liquidated-damages figure calculated as a penalty for leaving rather than as a genuine pre-estimate of loss.
How to Fix Your Employment Agreement Template
Step 1: Find every repayment trigger in your current template. Search for language conditioning repayment of a bonus, training cost, or relocation expense on a minimum tenure. If the clause fires because the employee left early—rather than because they broke a separate, specific promise—it's a stay-or-pay clause.
Step 2: Sort by where your employees actually work. California's ban already applies to any employee working in California, regardless of your company's home state. Connecticut and New York's rules will apply the same way once effective. A single national template no longer works if it contains stay-or-pay language.
Step 3: Replace clawbacks with a vesting schedule. Instead of "repay $5,000 if you leave within 12 months," structure a signing bonus or training stipend to vest over time—for example, paid in installments at 3, 6, and 12 months. A bonus that simply hasn't vested yet isn't a repayment obligation, so it falls outside these bans.
Step 4: Update agreements before each effective date, not after. Connecticut's October 1, 2026 rule applies to notes "executed on or after" that date—agreements signed before then aren't retroactively voided, but any renewal or new hire after that date needs the updated language. New York employers have until December 19, 2026 to do the same.
Step 5: Keep genuine advances and property-sale terms separate and specific. If you still want to recover the cost of equipment or a true cash advance, document it as its own agreement with clear terms—don't fold it into a broad "repay us if you quit" clause that a court or regulator will read as a disguised stay-or-pay provision.
A contractor agreement or services agreement can serve as a starting draft if you're restructuring how you compensate short-term or project-based workers instead of using an employment relationship with repayment strings attached—review the result with counsel in the states where your team works. For the full list of clauses a standard employment agreement should include, see the employment agreement guide.
A Worked Example: What Changes for a $15,000 Training Clawback
Say a home health agency spends $15,000 certifying a new hire in a specialized skill, and the offer letter says the employee owes that full amount back if they leave within two years. Before 2026, this was standard practice in most states, including California.
Under California's AB 692 (effective now): The clawback is void from the moment the agreement is signed. If the agency tries to withhold a final paycheck or sue for the $15,000, the employee can bring a claim for the greater of $5,000 or their actual damages, plus attorneys' fees and costs. The agency's only real options are to eat the training cost or restructure it as a genuine advance with its own separate, specific repayment terms unrelated to tenure.
Under Connecticut's Public Act No. 26-12 (effective October 1, 2026): The same clawback, if put in a new hire's contract on or after that date, is void as against public policy regardless of how many employees the agency has—the old 26-employee exemption is gone.
Under New York's Trapped at Work Act (effective December 19, 2026): The agency cannot require the employee to sign the note as a condition of employment in the first place.
What still works everywhere: Paying for the $15,000 certification up front with no repayment condition, then offering a retention bonus that vests in installments—say, $5,000 at the one-year mark and $5,000 at the two-year mark. The employee who leaves early simply doesn't collect the unvested portion; nobody owes anybody money. That distinction—forfeiting a future benefit versus repaying a past cost—is the line every one of these laws draws.
What Employees Should Do If They Already Signed One
If you signed a stay-or-pay clause before your state's ban took effect, the new laws generally aren't retroactive—an agreement executed before the effective date isn't automatically void just because the law changed. But two things are worth checking: whether your employer is asking you to sign a renewal or amendment after the effective date (which would trigger the new rule), and whether your state's law includes its own separate protections for agreements already in force, since the exact retroactivity rules differ by state and by the specific statute involved. When in doubt, that's a question for an employment attorney in your state, not a national template.
Stay-or-Pay vs. Non-Compete: Different Problem, Different Law
These two restrictions are often confused because they show up in the same employment agreements, but they solve different problems for the employer and get regulated on separate tracks. A non-compete restricts where someone can work next; a stay-or-pay clause makes leaving itself expensive. See our FTC non-compete rule 2026 update and state-by-state non-compete guide for the parallel—but separate—restrictions on where former employees can take their next job.
Sources
- California AB 692 (2025), codified at Cal. Bus. & Prof. Code § 16608: https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202520260AB692
- Connecticut Public Act No. 26-12 (2026), amending Conn. Gen. Stat. § 31-51r: https://www.cga.ct.gov/2026/ACT/PA/PDF/2026PA-00012-R00SB-00001-PA.PDF
- New York Trapped at Work Act, signed December 19, 2025, amended February 13, 2026: https://www.nysenate.gov/legislation/bills/2025/s372
- WilmerHale — "It's a TRAP! California and New York Restrict 'Stay-or-Pay' Provisions": https://www.wilmerhale.com/en/insights/client-alerts/20260323-its-a-trap-california-and-new-york-restrict-stay-or-pay-provisions-in-employment-agreements
- Seyfarth Shaw — "Connecticut Expands Scope of Its 'Stay or Pay' Prohibition": https://www.seyfarth.com/news-insights/connecticut-adopts-broad-pay-or-stay-prohibition.html
- Rubin Fortunato — "Connecticut Expands Its Prohibition on Employment Promissory Notes": https://www.rubinfortunato.com/article/connecticut-expands-its-prohibition-on-employment-promissory-notes/
- Student Borrower Protection Center — TRAPs overview: https://protectborrowers.org/what-we-do/workplace-debt-labor-exploitation/stay-or-pays-traps/traps/
- Mayer Brown — "A Deeper Dive Into California's New Limitations on 'Stay or Pay' Clauses": https://www.mayerbrown.com/en/insights/publications/2026/03/a-deeper-dive-into-californias-new-limitations-on-stay-or-pay-clauses-as-of-january-1-2026
This article is for informational purposes. Pactlio generates professional drafts for review — not legal advice.
Frequently Asked Questions
What is a stay-or-pay clause?▾
A stay-or-pay clause (also called a training repayment agreement provision, or TRAP) requires an employee to repay the employer—for training, a signing bonus, relocation, or similar costs—if they leave their job before a set amount of time. Several states now ban or sharply limit these clauses in new employment contracts.
Is a training repayment agreement legal in California?▾
Mostly no, as of January 1, 2026. California's AB 692 (Business and Professions Code § 16608) voids most stay-or-pay provisions in employment contracts, including training repayment clauses, quit fees, and liquidated damages tied to leaving early. Workers can sue for the greater of $5,000 or actual damages, plus attorneys' fees.
When does Connecticut's stay-or-pay ban take effect?▾
Connecticut's Public Act No. 26-12 voids any 'employment promissory note'—an agreement requiring repayment if an employee leaves before a set period, including training reimbursement—executed on or after October 1, 2026. Unlike the prior law, which only covered employers with 26+ employees, the new rule applies to employers of any size.
Does New York ban training repayment agreements?▾
Yes, starting December 19, 2026. New York's Trapped at Work Act prohibits employers from requiring an employee or job applicant to sign an employment promissory note as a condition of employment. The effective date was pushed from the original signing date after a February 2026 amendment.
Can employers still recover any costs when an employee quits early?▾
Some exceptions typically survive: repayment of cash advances, payment for property sold or leased to the employee, sabbatical terms for educational staff, and terms set through collective bargaining. Blanket repayment clauses tied purely to an early departure date are the target—not every cost-recovery arrangement is automatically void.
Does a stay-or-pay ban apply to sign-on bonuses too?▾
Often, yes. California's law and Connecticut's expanded rule both cover clawback language attached to signing bonuses and relocation payments, not just formal training costs—if the repayment is triggered by leaving before a set date, it falls under the same restriction.
What should I do with my current employment agreement template?▾
Remove any clause that conditions repayment of training, bonus, or relocation costs on how long an employee stays, especially for agreements signed or renewed after each state's effective date. Replace blanket repayment language with a vesting schedule for bonuses instead, which sidesteps most of these bans.
Is this the same as a non-compete ban?▾
No. Non-competes restrict where someone can work after leaving; stay-or-pay clauses charge someone money for leaving. They're often used together, but they're regulated separately—California and New York restrict both, while some states that allow non-competes still ban stay-or-pay provisions.