California and New York recently enacted legislation aimed at prohibiting certain contract terms that impose financial obligations on workers if their work relationship terminates. Subject to limited exceptions, both New York’s “Trapped at Work Act,” effective December 19, 2025, and California’s Assembly Bill 692, effective January 1, 2026, prohibit contract terms commonly known as “stay-or-pay” provisions or training repayment agreement provisions (TRAPs). Such prohibited clauses will be considered void and against public policy as they restrain a person from engaging in a lawful profession, trade, or business.
These newly enacted laws, along with similar laws in states like Colorado, reflect a growing trend to limit contractual barriers to job changes and promote greater employee mobility in the labor market.
Background
While the restrictions imposed by AB 692 do not impact contracts entered into before January 1, 2026, for contracts entered into on or after January 1, 2026, it is unlawful to include, or require a worker (which includes, but is not limited to, an employee or prospective employee) to execute, a contract term that:
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