Is This the End of Stay-or-Pay Clauses? States Move to Restrict Repayment Clauses
Recent legislative developments in multiple states have targeted “stay-or-pay” clauses—contract terms that obligate employees to repay certain bonuses and educational or training expenses if the employee does not stay for a required period of time. Historically, these provisions were intended to safeguard employer investments in training and onboarding. However, state lawmakers are increasingly viewing them as restrictive and unfair to workers. Employers, particularly those with employees across multiple states, should carefully examine current agreements and prepare for compliance with these evolving state standards to mitigate risk and maintain lawful practices.
California
Effective January 1, 2026, California Assembly Bill 692 (AB 692) prohibits employment contracts that require employees to repay employment related costs upon early separation. If the employer violates the law, they may be exposed to penalties, fees, or costs such as liquidated damages. The California legislature included several key exceptions:
- Loan repayment assistance programs
- Tuition repayment
- Apprenticeship program enrollment
- Sign-on bonuses
- Residential property agreements
New York
Effective December 19, 2025, New York’s Assembly Bill A584C, known as the “Trapped at Work Act,” bans agreements requiring “workers” to pay their employer if they leave before a stated period. “Workers” is defined broadly to include employees, externs, interns, volunteers, and more. The law specifically prohibits employment promissory notes, defined as any agreement obligating a worker to pay the company if they leave before the passage of a stated time period. Under the Act, prohibited promissory notes include those that require repayment of training costs and imposition of financial penalties. As with the California statute, employers who violate the law may be assessed fines for each agreement that it seeks to have signed or enforced. The Act contains four exceptions for agreements that:
- require the worker to pay any sums advanced by the employer, unless those sums were used for training;
- require the worker to pay the employer for property it has sold or leased to the employee;
- require educational personnel to comply with the terms/conditions of sabbatical leaves provided by the employer; and
- is entered into as part of a program agreed to by the employer and its workers’ collective bargaining representative.
On January 6, 2026, the New York Legislature introduced A.9452/S.8822, which would amend the Act. Among other clarifications, the proposed amendments narrow the definition of “employee” and revise the existing exceptions to expressly include tuition repayment agreements related to transferrable credentials (with some limitations) and certain noneducational repayment arrangements, such as bonuses and relocation payments that are not tied to job performance. Although the Act is currently in effect, the proposed amendments, if enacted, would extend its effective date to December 19, 2026.
Wyoming
Wyoming recently enacted SF0107, which was effective July 1, 2025, and bans noncompete agreements but permits narrowly tailored “stay-or-pay” provisions. Employers may recover relocation, education, and training costs on a sliding scale, outlined below, for up to four years, but recovery is prohibited beyond that period.
- Less than two years of service: Employer may recover up to 100% of the expense;
- Between two and less than three years: Employer may recover up to 66% of the expense;
- Between three and less than four years: Employer may recover up to 33% of the expense; and
- Four or more years: Employer may not recover any of the expense.
Indiana
Indiana’s Senate Bill 475, which was effective July 2025, bans physician non-competes and also limits an employer’s ability to impose repayment on physicians who have been employed by a hospital, a parent company of a hospital, an affiliated manager of a hospital or a hospital network for three years or more. Employers cannot require physicians employed for at least three years to repay bonuses, training expenses, or similar costs solely because they move to a different employer.
Practical Guidance for Employers
- Review existing agreements for compliance with new state laws.
- Identify exceptions that may apply, based on the state’s law.
- Monitor legislative developments in other states, as similar restrictions may emerge.
- Narrowly tailor any “stay-or-pay” language included in agreements, particularly in states that prohibit those agreements.
Bottom Line
States are increasingly limiting or banning “stay-or-pay” clauses, and more changes are likely ahead. This is yet another area where employers need to be very mindful of where their employees, including remote employees, work. Employers should thus tailor their agreements to comply with the applicable state law(s).
Source(s):
Is This the End of Stay-or-Pay Clauses? States Move to Restrict Repayment Clauses | JD Supra. (2026). JD Supra. https://www.jdsupra.com/legalnews/is-this-the-end-of-stay-or-pay-clauses-5021825/
California AB692 | 2025-2026 | Regular Session. (2025). LegiScan. https://legiscan.com/CA/text/AB692/id/3269434
Legislative Service Office. (2026). Wyoleg.gov. https://wyoleg.gov/Legislation/2025/SF0107