New York Amends Trapped at Work Act

Enacted on December 19, 2025, the Trapped at Work Act (the Act) added a new Article 37 to the New York Labor Law. It targets "employment promissory notes" – contract terms requiring workers to pay money back to the employer if they leave before a specified period, including many training-repayment provisions. The original law applied broadly to employees, contractors, interns, externs and volunteers and was designed to curb arrangements that effectively lock workers into their jobs through financial penalties.

However, on February 13, 2026, Gov. Kathy Hochul signed amendments to the Act extending the effective date to February 13, 2027 – giving employers an extra year to comply – as well as other changes. This Holland & Knight alerts reviews the amendments to the Act.

What Changed on February 13, 2026?

The amendments significantly reshape the statute:

• New Effective Date. The Act now becomes operative on February 13, 2027, not immediately, giving employers a one-year runway to comply.
• Narrowed Coverage. The protections now apply only to "employees." Independent contractors, interns, externs and volunteers are no longer covered. Certain government entities and organized groups are also carved out from the definition of "employer."
• Termination-Neutral Application. The restriction on stay-or-pay clauses applies regardless of how or why the employment relationship ends.
• Training Cost Repayment Tightened. Prior to the amendments, the Act permitted clauses that required repayment of "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." In its place is a narrow exception for reimbursement of a "transferable credential" – a degree, license, certificate or similar credential that is recognized in the broader industry and enhances employability elsewhere. Employer-specific training and mandatory safety/compliance training do not qualify.
• Strict Conditions for Transferable Credentials. Any repayment obligation tied to a transferable credential must be 1) set out in a written contract separate from the employment agreement, 2) not conditional on employment, 3) specify the repayment amount in advance, capped at actual costs, 4) provide for prorated, nonaccelerated repayment over the agreed period, and 5) waive repayment if the employee is terminated for any reason other than misconduct.
• Benefit Repayment Allowed in Narrow Circumstances. Employers may require repayment of certain nonperformance-based benefits – such as signing bonuses or relocation assistance – if the employee is terminated for misconduct or the job duties were misrepresented.

The amended Trapped at Work Act applies to all employers in New York, with the exception of government entities and certain organized groups.

Enforcement Mechanisms, Penalties and Remedies

The Act does not create a private right of action. Enforcement lies with the New York labor commissioner, who may impose civil penalties of $1,000 to $5,000 per violation, taking into account factors such as employer size, good‑faith compliance efforts, the seriousness of the violation and any past history.

Although employees cannot sue directly under the statute, they are not without recourse. An employee who successfully defends against an employer's lawsuit to enforce a void repayment provision may recover their reasonable attorneys' fees.

Practical Takeaways for Employers

The amendments make the statute clearer but also more demanding in practice. The explicit green light for clawing back certain bonuses and relocation assistance from employees terminated for misconduct will be attractive to many employers. However, it puts a premium on clear policies and meticulous documentation of "for misconduct" terminations.

At the same time, most training‑repayment models are now off the table unless they qualify as narrowly defined transferable credentials and satisfy all statutory conditions. The law is also largely silent on some common retention tools such as forfeitable equity awards, leaving some gray areas that warrant careful structuring and documentation.

Recommended Next Steps Before February 13, 2027

With the new effective date of February 13, 2027, employers have a clear timeline to ensure compliance. Recommended actions include:

• Inventory Agreements. Identify all agreements (offer letters, bonus plans, relocation agreements, training repayment contracts and promissory notes) that require repayment tied to continued employment.
• Remove or Redraft Risky Clauses. Engage legal counsel to review all relevant agreements, and eliminate or revise any stay-or-pay provisions that do not fit within the Act's limited exceptions.
• Design Compliant Credential Agreements. Where transferable credential repayment is desired, work with legal counsel to structure standalone agreements that satisfy all statutory prerequisites.
• Tighten Misconduct Documentation. Ensure policies, investigation protocols and termination documentation can support any repayment triggered by misconduct.
• Revisit Retention Strategy. Consider shifting emphasis toward alternatives such as deferred compensation, equity awards and retention bonuses that are not framed as repayment obligations.

New York's statute is part of a broader state‑level trend toward limiting training‑repayment and other stay‑or‑pay structures. Multistate employers should align their approach across jurisdictions and continue monitoring new developments.

For questions about the Trapped at Work Act or assistance revising your agreements and policies, please contact Holland & Knight's Labor and Employment Team.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.