As our readers will recall from a previous post, New York’s Trapped at Work Act was recently enacted and generally prohibits employers from requiring employees or applicants, as a condition of employment, to agree to repay money if they leave before a specified date. The law includes exceptions for certain arrangements involving tuition assistance, signing bonuses, and relocation payments. With the law taking effect on December 19, 2026, the Department of Labor has now clarified when these repayment obligations remain permissible.
For employers, the guidance answers a practical question: if you pay a signing bonus, help an employee obtain a credential, or advance paid time off, can you recover that money when the employee leaves? The answer depends on how the arrangement was offered, what the payment covered, and why employment ended.
First, Which Agreements Are Affected?
The DOL confirms that the law applies to new agreements, and new or amended terms in existing agreements, entered into on or after December 19, 2026. An existing repayment obligation does not become subject to this law simply because the employee’s commitment extends beyond that date. Employers should therefore review the documents they plan to use going forward, including repayment provisions tucked into offer letters, bonus programs, and tuition assistance policies.
If the Benefit Is Optional, the Employee Must Have a Real Choice
The DOL explains that a repayment arrangement falls outside the prohibition when it is genuinely voluntary and separate from accepting or keeping a job. In other words, the employee can decline the arrangement and still work for the employer. This gives employers flexibility when offering optional benefits. But calling a program “voluntary” is not enough. The employee needs to understand that declining it will not affect their employment, and the employer needs to operate the program that way.
Signing Bonuses and Relocation Payments Can Still Be Recovered in Certain Situations
Under the exception for signing bonuses, relocation assistance, and similar benefits that are not tied to specific job performance, an agreement may require repayment if the employee voluntarily resigns or is fired for misconduct. The employer must also have accurately described the job’s duties and requirements.
For example, an employee who accepts a signing bonus and resigns three months into a one-year commitment may owe repayment under the agreement. If the employer eliminates the employee’s position, however, repayment cannot be required under this exception. The exception also does not permit repayment where the employer misrepresented the job.
The DOL also clarified that misconduct includes behavior harmful to the employer’s interests or violating a reasonable work condition. Employers seeking repayment on that basis should document what happened and why the employee was discharged. Simply describing a termination as “for cause” should not replace that review.
However, Training Costs Require a Closer Look
The law includes an “educational exception” that allows employers to require repayment of certain educational expenses if an employee leaves before completing an agreed period of employment. It covers tuition, fees, and required educational materials for a transferable credential—meaning a degree, license, or recognized certificate that the employee can use to obtain work with other employers. The exception does not cover employer-specific training or mandatory safety and compliance training. And even if the credential is transferable, the employer must meet the following requirements to rely on this exception:
- Use a separate written agreement to confirm the advanced tuition fees would be recoverable from the employee
- Ensure that obtaining the credential is not a condition of employment (if that is indeed applicable)
- Disclose the repayment amount upfront and limit it to qualifying costs the employer actually paid
- Reduce the amount owed proportionally as the employee completes the required employment period, without speeding up the payment schedule when employment ends.
- Exclude repayment when the employer terminates the employee for a reason other than misconduct.
Examination and licensing fees may qualify when they are part of obtaining the credential. Employers should retain receipts and maintain a clear calculation of the employee’s remaining balance.
What About Advanced Bonuses or PTO?
The guidance also addresses optional advances, such as a sign-on bonus or PTO. In this case, an employee may choose to receive a performance-based payment before meeting the required targets, with an obligation to repay it under the agreement if they do not meet the conditions later on. The employee must also have the option to wait until the targets are met before receiving payment.
Similarly, an employer may require repayment of voluntarily accepted paid leave advanced before it is earned if the employee leaves before the agreed date. So, recoupment of advances is still allowed; however, they must be carefully documented.
Do Not Automatically Deduct the Balance From the Final Paycheck
Even if an employee owes money under a valid agreement, that does not automatically allow the employer to collect it through payroll. Recall that New York Labor Law 193 wage deduction rules require a separate review. A signed agreement saying “we can deduct this from your final paycheck” does not, by itself, make the deduction lawful. Before processing a deduction, payroll should confirm both that repayment is owed and that the proposed deduction is permitted.
What Employers Should Do Now
Review your repayment agreements before December 19, particularly the templates used for new hires and new benefit awards. Confirm that optional programs give employees a real choice, repayment amounts are supported by records, and the agreements account for why employment ended.
Then make sure recruiting, HR, and payroll follow the same rules. The agreement will accomplish little if a recruiter presents an optional benefit as mandatory or payroll automatically deducts a balance that cannot lawfully be withheld.
The DOL may impose penalties ranging from $1,000 to $5,000. Employers that sue to enforce an agreement voided by the Act may also have to pay the employee’s attorneys’ fees if the employee successfully defends the lawsuit.
Employers still have ways to protect their investment in employees. Now is the time to confirm that the paperwork—and the way those programs are administered—supports that goal.