Connecticut, New York Tighten Screws on ‘Stay or Pay’ Agreements

The following was first posted in the Blogs section of Pullman & Comley’s website. It is reposted here with permission.

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Readers may recall that in 2024 the Federal Trade Commission promulgated a rule banning Training Repayment Agreement Provisions, which require employees to repay their employers for training if the employee leaves within a specified period of time.

The FTC considered TRAPs to be “functional noncompetes.” That rule was struck down by a federal district court, and after the current administration took office, the FTC withdrew its appeal.

With the FTC’s attempted federal ban on TRAPS now defunct, state governments are increasingly adopting statutes and regulations to restrict or prohibit “stay or pay” arrangements.

Connecticut and New York employers must take steps to ensure compliance with two new laws with fast-approaching deadlines: Connecticut’s expanded “Stay or Pay” prohibition (effective Oct. 1, 2026), and New York’s “Trapped At Work Act” (effective on or after December 2026).

The following advisory details each law’s requirements and highlights key steps employers that employers should take now before they take effect.

Connecticut’s Expanded ‘Stay or Pay’ Law

Since 1985, Connecticut has prohibited “employment promissory notes,” which are agreements requiring an employee to pay or repay specific sums to the employer if the employee leaves before a stated period expires.

Previously, this rule applied only to employers with more than 25 employees. Effective Oct. 1, 2026, however, the law will be amended and expanded as follows:

• All employers are covered. The 25-employee threshold is eliminated.
• Covered Agreements are void. Any repayment obligation tied to the employee’s separation before a stated period passes, whether classified as a training reimbursement, employee retention payment, sign on bonus, or otherwise, is void and unenforceable.

If an employment promissory note is part of a broader agreement, only the offending provision is rendered void, with the remainder remaining enforceable.

Exceptions: The prohibition does not apply to:

• Advances: Repayment of loans or prepaid amounts advanced by the employer;
• Property: Payment for property sold or leased to the employee by the employer;
• Sabbaticals: Educational personnel compliance with sabbatical leave terms;
• CBAs: Programs agreed to with a collective bargaining representative.

Enforcement and Penalties: Connecticut does not impose civil penalties or create an administrative complaint procedure. Covered provisions are void as against public policy, meaning employers cannot enforce them in court and employees may raise the statute as a defense.

New York’s ‘Trapped At Work Act’ 

Gov. Kathy Hochul signed the Trapped At Work Act on Dec.19, 2025, adding Article 37 to the New York Labor Law.

The original version took effect immediately but was widely recognized as overbroad. Amendments signed on Feb. 13, 2026 revised the act’s scope, created new exceptions, and delayed the effective date to one year after it became law.

Some practitioners interpret the effective date to be Feb. 13, 2027, but the consensus is that the amended law will take effect on Dec. 19, 2026—one year after the original law was signed.

As amended, New York’s “Trapped at Work Act” prohibits any agreement requiring employees or prospective employees to execute an “employment promissory note”—defined (as in Connecticut’s statute) as any instrument, agreement, or contract provision requiring an employee to pay the employer a sum of money if the employment relationship terminates before the expiration of a stated period.

Exceptions: The amended act does not apply to the following five categories of employment promissory notes (i.e., the employer may require repayment in the following circumstances):

1.  Transferable Credentials. The employer may require tuition reimbursement for degrees, licenses, certificates, or documented skill proficiencies widely recognized in the industry, provided that:

• The agreement is separate from the employment contract;
• The credential is not required for employment;
• Repayment is disclosed in advance and does not exceed actual cost;
• Repayment is prorated with no acceleration upon separation; and,
• Repayment is not required if the employee is terminated (except for misconduct).  

2.  Non-Educational Incentives. The employer may require repayment of bonuses, relocation assistance, or other non-educational payments, unless:

• The employee was terminated for reasons other than misconduct; or
• The job duties were misrepresented to the employee.

3.  Property. The employer may require payment for property voluntarily sold or leased to the employee.

4.  Sabbaticals. An educational employer may require compliance with sabbatical leave terms.

5.  CBAs. Employees may be required to comply with agreements entered into as part of a collective bargaining agreement.

Enforcement and Penalties: The law does not create a private right of action for employees to sue employers, but:

• Employees may file complaints with the New York State Department of Labor;
  • The Commissioner may impose civil penalties of $1,000–$5,000 per violation (considering employer size, good faith, gravity, and history);
• Each employee required to execute a prohibited promissory note, and each employer attempt to enforce a prohibited note, constitutes a separate violation; and
• Employees who successfully defend against an employer’s attempt to enforce a prohibited note may recover their attorneys’ fees.

Practical Takeaways for Employers:

1.  Audit existing agreements now. Employers in both states should review all active agreements containing repayment obligations, including offer letters, training reimbursement agreements, retention arrangements, sign-on bonus claw-backs, relocation assistance agreements, immigration sponsorship arrangements, and tuition or education-related assistance programs.

2.  Restructure permissible arrangements carefully. In New York, where transferable credential and non-educational incentive exceptions exist, employers should ensure that agreements are structured to meet every statutory requirement (i.e., separate written contracts, prorated repayment, no acceleration, and misconduct-only termination triggers).

3.  Eliminate impermissible provisions before the deadlines. For Connecticut employers, this means removing all stay-or-pay provisions from agreements to be entered into on or after October 1, 2026, unless they fall within a recognized exception. For New York employers, the deadline appears to be December 19, 2026 (although it could be February 13, 2027).

4.  Develop alternative retention strategies. Given the increasing restrictions on repayment-based retention mechanisms, employers may wish to explore alternative approaches (e.g., vesting schedules for equity or deferred compensation, structured bonus programs that reward tenure without penalizing departure, or enhanced workplace culture and development opportunities).

5.  Monitor for further guidance. The New York Department of Labor is expected to issue regulations and further guidance closer to the Act’s effective date. Connecticut employers should similarly monitor any regulatory guidance from the Connecticut Department of Labor.

Employers with questions about how these laws affect their training repayment agreements, sign-on bonus claw back provisions, tuition reimbursement programs, or other retention-related arrangements should consult with experienced employment counsel to ensure compliance and develop practical strategies going forward.

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About the author: John Cigno is an associate in Pullman Comley’s Labor, Employment Law, and Employee Benefits practice. He focuses his practice on defending employers against a wide variety of employment litigation claims and providing preventative advice and counseling on diverse workplace matters.