On December 19, 2025, New York enacted the “Trapped at Work Act” which, effective
immediately, adds a new chapter to the New York Labor Law barring
employers from entering into “employment promissory
notes” with employees, contractors, and other workers. This
development follows a similar measure enacted in California earlier
this year which was broader and prohibited, or otherwise placed
material restrictions around, many “stay or pay”
arrangements (which we covered here). While the Act does not ban all
“stay or pay” arrangements, it does prohibit certain
types of agreements and creates a new hurdle for employers to clear
in structuring employee incentive programs.

The Scope of Restrictions

The Act regulates certain agreements between
“employers” (broadly defined to cover individuals or
entities that “hire or contract” with a worker to work
for the employer or that provide training to workers) and
“workers” (also broadly defined to cover employees,
independent contractors, interns, externs, volunteers, apprentices,
and sole proprietor service providers, though individuals
“whose sole relationship with the employer is as a vendor of
goods” are not covered).

Specifically, New York employers are now prohibited from
requiring workers to enter into an employment promissory note as a
condition of employment. Such agreements are now void and
unenforceable because they are “against public policy”
and “unconscionable.”

The Act defines a prohibited “employment promissory
note” as “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 such employment before the passage of a stated period of
time.” An “employment promissory note” explicitly
includes “any instrument, agreement, or contract provision
which states [that] payment of moneys constitutes
reimbursement for training provided to
the worker by the employer or by a third party.”

Notable Exceptions

Despite the seemingly broad set of agreements covered, the Act
lists several arrangements which do not
constitute prohibited “employment promissory notes.”

First, the Act is clear that it does not “prohibit or
render void or unenforceable any agreement between a worker and an
employer that requires the worker to repay to the employer any
sums advanced to such worker by the
employer, unless such sums were used to pay for training related to
the worker’s employment with the employer.”

Second, the Act does not apply to agreements that require a
worker to pay the employer for property sold or leased to the
worker.

Third, the Act excludes incentive programs contained in
collective bargaining agreements, as well as programs for
educational personnel that allow for sabbatical leaves.

The Act’s Effective Date

The Act’s restrictions do not
appear to apply retroactively. Instead, employers are restricted
from requiring workers or prospective workers to
“execute” agreements containing prohibited provisions
on/after the Act’s December 19, 2025 effective date. However,
employers should still tread carefully with respect to agreements
that were executed before the effective date. For example, if an
existing agreement containing provisions covered by the Act is
amended or revised following the effective date, these new
restrictions could apply to the updated and/or amended version.

Enforcement and Penalties

The Act does not create a private
right of action for workers. Instead, the New York State Department
of Labor (NYSDOL) may issue civil penalties between $1,000 and
$5,000 for each violation. However, workers
are allowed to recover attorneys’
fees if they successfully defend against an employer’s attempt
to enforce any agreements prohibited by the Act. Accordingly,
employers should doubly confirm that pre-existing agreements are
enforceable before attempting to assert rights under such
agreements, as an unsuccessful attempt could result in a worker
recovering attorneys’ fees even if the underlying agreement did
not include a provision providing for such recovery.

Next Steps and Takeaways

This robust set of exceptions to the general prohibition aligns
with the Act’s legislative summary, which focuses on banning
“training reimbursement agreements” as opposed to more
broadly prohibiting all such repayment agreements. That said,
additional clarity is needed, including whether signing or
retention bonuses would fall under the “sums advanced”
exception along with other agreements providing employees
contingent incentives to stay (provided such arrangements do not
focus on recoupment for “training” programs). Those types
of agreements appear to satisfy the exceptions, but we will look
for confirmation from the NYSDOL via regulations it may promulgate
and/or other guidance it may issue. Indeed, Governor Hochul
expressed concerns about such ambiguities when signing the Act into
law and urged clarifications after signing the Act into law. Until
the NYSDOL issues further guidance, the precise contours of these
prohibitions will remain somewhat ambiguous.

To ensure compliance with the Act, New York employers should
review their existing agreements requiring repayment, including
those with clawback components, to better ensure they can meet one
of the act’s exemptions. For signing and retention bonuses,
employers should consider whether to update their agreements to
confirm that the amounts paid to employees are sums that are being
advanced. Alternatively, employers may also consider restructuring
certain incentive compensation to pay bonuses to employees only
after they meet certain tenure milestones.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.