States across the country are tightening restrictions on “stay-or-pay” agreements that require employees to repay training costs or related expenses if they leave before a specified period of employment. Historically, employers have relied on these agreements to safeguard training investments; however, they are now increasingly susceptible to state-level restrictions and legal challenges. In the face of a shifting legal landscape, employers (particularly those with employees across multiple jurisdictions or in states that have already passed restrictions, including California, Colorado, and New York), should reassess how they use and structure such agreements. Employers who choose to continue using stay-or-pay agreements must carefully evaluate whether pursuing enforcement is advisable. This article highlights key compliance considerations and best practices for employers navigating emerging restrictions on stay-or-pay agreements.
What Restrictions Are States Imposing on Stay-or-Pay Agreements?
Stay-or-pay agreements, or training repayment agreements (sometimes referred to by the acronym TRAP), require an employee to repay all or some of the costs of certain expenses covered by their employer if they do not meet specified conditions. Typically, these agreements cover the cost of training, tuition, or other professional development opportunities, and include a repayment clause that is triggered if the employee leaves before a set duration of employment (e.g., one year after reimbursement of training or tuition costs). Employers often use these agreements to protect their investment in employee development. By offsetting the risk of early turnover, stay-or-pay agreements allow employers to provide more robust or costly training programs, which in turn can make employment packages more attractive to current and prospective employees.
Recently, several states have passed or proposed legislation restricting the use of stay-or-pay agreements. Under Colorado law, for example, stay-or-pay agreements are permissible only with respect to training “distinct from normal, on-the-job training” and the repayment obligations must decrease proportionately based on the number of months that have passed over the two years subsequent to the training. An employer who violates Colorado’s law may face legal action by the attorney general or affected workers, with potential liability for actual damages, attorneys’ fees and costs, and penalties of up to $5,000 per worker.
California recently enacted AB 692, which takes effect on January 1, 2026. AB 692 makes it unlawful for an employer to include terms in an employment contract requiring a worker to pay for a debt if the employment relationship terminates. As a result, AB 692 effectively bans most stay-or-pay agreements with certain narrow exceptions. Exceptions include contracts related to repayment of the cost of tuition for a transferable credential and discretionary payments not tied to job performance. Even in those limited circumstances, the agreements must satisfy specified procedural requirements to be enforceable. AB 692 creates a private right of action for an individual or class of workers and allows for a representative action under the Private Attorneys General Act. Employers who violate the new California law may be liable for damages equal to actual losses or $5,000 per worker, whichever is greater, as well as injunctive relief and attorneys’ fees and costs.
Similarly, the New York legislature has passed the “Trapped at Work Act,” which is expected to be signed by the governor before the end of the year. The Trapped at Work Act will render most training repayment agreements unenforceable with limited enumerated exceptions. Although the Trapped at Work Act does not currently provide workers with a private cause of action, the New York State Department of Labor may assess penalties ranging between $1,000 and $5,000 per violation. Similar legislation has been introduced in a number of other states, and more is anticipated to follow suit.
What Are the Risks of Noncompliance?
Failure to comply with state restrictions on stay-or-pay agreements can carry significant risks, including government enforcement actions and private litigation seeking damages, fees, costs, and other penalties. Indeed, a number of state attorneys general have been actively pursuing enforcement of their state’s restrictions on stay-or-pay agreements. For example, Colorado Attorney General Phil Weiser filed a lawsuit against PetSmart LLC, alleging that it deceptively used training repayment agreements with groomers, in violation of Colorado law. The parties reached a settlement in November 2025, under which PetSmart agreed to pay $225,000 and cease enforcement of the agreements. In July 2025, attorneys general of California, Colorado, and Nevada entered into a multi-state settlement with HCA Health Care, Inc. for allegedly requiring nurses to enter into unlawful training repayment agreements for required training. HCA paid approximately $2.9 million to settle the actions in California, Colorado, and Nevada and agreed to take other responsive action.
How Can Employers Adapt to Remain Compliant?
In light of this emerging trend toward state-level restrictions, employers using stay-or-pay agreements are well advised to reevaluate their utility and confirm that associated repayment obligations are permitted under applicable state laws. Employers should also carefully review the language of their agreements to ensure employee obligations are clearly articulated and be mindful of any procedural requirements necessary for proper execution and enforcement. When an employee violates a stay-or-pay agreement, triggering a repayment obligation, employers must also thoroughly assess the risk of enforcement, including potential state law compliance issues, cost, and broader business considerations.
Employers with questions regarding their use of stay-or-pay agreements or legal developments relating to such agreements may contact the authors of this article or any other attorney in Venable’s Labor and Employment Group.