New York DOL Issues Guidance on Incoming Trapped at Work Act

The TAWA, codified as Article 37 of the New York Labor Law, will generally prohibit employers from requiring employees or prospective employees, as a condition of employment, from using Training Repayment Agreement Provisions (TRAPS) and similar “stay-or-pay” arrangements requiring employees to repay their employer if the employment relationship ends before a specified date. Under the law, such agreements are declared unconscionable, against public policy, and unenforceable.

Background: What Changed and When

New York Gov. Kathy Hochul signed the TAWA into law on Dec. 19, 2025. On Feb. 13, 2026, Gov. Hochul signed an amendment to clarify the TAWA’s scope, expand the list of permissible exceptions, and delay implementation in response to employer and industry concerns about the original law’s breadth and immediate effective date. Recent NY DOL Guidance resolves several key questions:

• Effective date. The TAWA takes effect on Dec. 19, 2026.
• Prospective application. The TAWA will apply only to new agreements, and to new or amended terms in existing agreements, entered into on or after the effective date. An existing repayment obligation will not become subject to the TAWA simply because it continues beyond Dec. 19, 2026.
• Definition of “misconduct.” The NY DOL guidance defines “misconduct,” which is key to the exception permitting clawbacks of non-educational financial incentives. This definition appears to be less restrictive than the “misconduct” standard developed under New York’s unemployment insurance case law.

Who Is Covered and What the TAWA Will Prohibit

TAWA will cover all New York private- and public-sector employers, regardless of industry, and all employees, regardless of full-time, part-time, or seasonal status.

The TAWA targets agreements that obligate an employee to repay money if the employment relationship ends before a specified period. Employers will not be able to require, as a condition of employment, that any employee or prospective employee sign an “employment promissory note” – meaning any agreement, or term in an agreement, obligating an employee to pay the employer (or its agent or assignee) a sum of money if the employment relationship ends before a stated period of time. There is no express requirement that the agreement be in writing.

Arrangements Outside the TAWA’s Reach

Under the NY DOL guidance, a repayment arrangement that is truly voluntary and separate from accepting or maintaining employment will not constitute a condition of employment and therefore will not be prohibited on that basis. Because the employee may begin or continue employment without agreeing to such terms, the arrangement will fall outside the TAWA and will not be required to qualify for one of the statutory exceptions. For example, the NY DOL guidance has indicated that an employer may offer an employee the choice between receiving an upfront payment tied to future performance targets, subject to repayment if the employee leaves, or deferring the payment until the targets are met. Because the upfront payment is optional, the repayment obligation would be permissible. The TAWA also will not apply to arrangements between an employee and a third party, such as certain loan-forgiveness arrangements between a lender and borrower, or to agreements expressly permitted or required under other statutory or common law.

Five Exceptions: Repayment Terms That Will Remain Enforceable

The TAWA specifically carves out five categories of agreements that remain enforceable:

1. Non-Educational Financial Incentives. Repayment agreements covering signing bonuses, relocation assistance, and other non-educational payments or benefits that are not tied to specific job performance may remain enforceable. An employer may generally be able to enforce such an obligation if an employee voluntarily resigns before completing the agreed service period. When drafting such agreements, employers should consider clearly identifying the covered payment, the required service period, the repayment trigger, and the treatment of different separation scenarios. Repayment generally may not be required if the employer terminates the employee for a reason other than misconduct — or if the employer misrepresented the duties or requirements of the position. According to the NY DOL guidance, “termination” means an employer-initiated separation (i.e., not an employee’s voluntary resignation), and “misconduct” means behavior that is detrimental to the employer’s interests or in violation of some reasonable work condition, including what an employer’s policy may define as “for cause” in a termination decision. Notably, this definition is broader than its counterpart under the New York insurance laws.
2. Transferable Credential Reimbursement. An employer may require repayment of tuition, fees, and required materials for an industry-recognized credential (e.g., a nursing license, CPA certification, or commercial driver’s license). Employer-specific training (e.g., proprietary systems) and mandated compliance training (e.g., OSHA or sexual harassment prevention) will not Repayment will be enforceable only if it is voluntary, not a condition of employment, and set out in a separate written contract that specifies the amount owed and prorates it straight-line over no more than three years; no repayment will be owed if the employee is terminated other than for misconduct or if the employer misrepresented the job.
3. Voluntary Property Transactions. Agreements requiring employees to pay for property the employer voluntarily sold or leased to them will remain valid.
4. Educational Personnel Sabbaticals. Agreements governing terms and conditions of employer-granted sabbatical leaves for educational personnel will remain permissible.
5. Collective Bargaining Agreements. Agreements made as part of a program negotiated with a union representative will not be affected.

Penalties and Enforcement

Violations will carry meaningful exposure through several channels:

• The TAWA permits fines of $1,000 to $5,000 per violation, with each affected employee counting as a separate violation.
• Attorney’s fees. An employee who is sued by an employer attempting to enforce a void promissory note and successfully defends that lawsuit may recover attorney’s fees.
• Administrative complaints. Employees may file a complaint directly with the New York Commissioner of Labor.
• No private right of action. Employees cannot directly sue employers for violations of the TAWA.

Potential Implications for Financial Institutions

Financial institutions may feel the impact of TAWA because repayment and clawback terms are built into many industry-standard compensation and recruiting arrangements, including sign-on and retention bonuses, forgivable loans, deferred compensation, relocation packages, and licensing and certification reimbursement. Whether a particular arrangement is prohibited, fits within an exception, or falls outside TAWA altogether depends on how it is structured and documented. As noted above, each affected employee may count as a separate violation.

Employer Considerations

With the effective date of TAWA quickly approaching, New York employers should consider the following steps:

1. Review agreements and programs that may contain repayment or clawback terms, including:

• Offer letters and employment agreements containing repayment provisions;
• Signing-bonus and retention-bonus agreements;
• Relocation assistance agreements;
• Forgivable loans, deferred compensation, and clawback or repayment terms in incentive, retention, and award agreements;
• Reimbursement arrangements for professional licenses, certifications, and exam preparation (e.g., CPA, CFA, and securities registrations);
• Tuition and educational reimbursement programs;
• Training repayment agreements and other TRAP provisions; and
• Other arrangements requiring repayment when employment ends within a specified period.

2. Confirm that agreements intended to fall within one of the TAWA’s exceptions satisfy the applicable statutory requirements.

3. Document voluntary arrangements to clarify that employees may decline without affecting their employment.