EMPLOYERS – BE CAREFUL ASKING FOR EMPLOYEE TO REFUND TO EMPLOYER
Stay-or-Pay Provisions Face Growing State-Level Regulation
“Stay-or-pay” provisions—contract terms requiring employees to repay certain employer-incurred costs if they leave before a specified period—are receiving increased legal scrutiny. These provisions often relate to training expenses (TRAPs) and have expanded beyond high-skilled roles into lower-wage industries in recent years.
Shifting Federal Landscape
Federal regulators previously signaled concern that stay-or-pay provisions may violate the National Labor Relations Act (NLRA) by discouraging employee mobility and protected activity. However, in 2025, the National Labor Relations Board rescinded prior guidance addressing these provisions, indicating a reduced federal enforcement focus.
Increased State Action
In the absence of consistent federal oversight, states are taking the lead:
- • California (AB 692): Prohibits most requirements that employees repay training, education, or other employment-related costs upon departure, with limited exceptions (e.g., certain tuition repayment agreements and retention bonuses).
- • New York (Trapped at Work Act): Bans “employment promissory notes,” including repayment obligations tied to employer-specific training. The law takes effect February 13, 2027, and includes limited carve-outs.
- • Other States: Similar restrictions are under consideration in jurisdictions including Minnesota, Ohio, Pennsylvania, and New Jersey.
Key Takeaways
- •State regulation of stay-or-pay provisions is rapidly evolving.
- •Employers should review existing agreements for compliance with new state laws.
- •Careful structuring of repayment provisions is critical to avoid characterization as unlawful restraints on employee mobility.
As additional jurisdictions consider legislation, employers should continue to monitor developments and reassess the use of employment-related repayment provisions.
Please feel free to contact Dawn at dawn@eppscoulson.com if you have any questions.
EPPS & COULSON, LLP
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