California and New York recently enacted statutory restrictions aimed at “stay-or-pay” arrangements: California AB 692 (Cal. Bus. & Prof. Code § 16608 & Cal. Lab. Code § 926) and the New York Trapped at Work Act (N.Y. Lab. Law art. 37, §§ 1050-1055), respectively. Such arrangements are contractual provisions that, while falling short of a non-competition agreement, make it costly for a worker to leave the company, often by requiring repayment of training costs, financial incentives, or other sums upon separation.
Together, these laws signal a shift in worker-mobility policy, with state legislatures now focusing on limitations that go beyond restrictive covenants.
Scope
California’s statute applies to contracts entered into on or after January 1, 2026. It broadly reaches terms in an “employment contract” or any agreement required as a condition of employment or other work relationship and that require a worker to pay a “debt” upon termination of employment, allow collection to begin or resume upon termination of employment (or end a forbearance), or impose any “penalty, fee, or cost” if the relationship ends. The definition of “penalty, fee, or cost” is expansive, and includes, among other things, various “quit fees,” replacement-hiring or retraining costs, immigration-related reimbursement, and other amounts representing company losses.
New York’s statute is more narrow. It prohibits employers from requiring, as a condition of employment, that a worker or...
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