It’s A TRAP! Employer Concerns for Tuition Reimbursement and Other Employee Repayment Agreements

States have increasingly focused on regulating agreements between employers and employees whereby an employee must repay the employer for payments made by the employer on behalf of the employee. For life science employers, these developments warrant attention, given the prevalence of sign-on and relocation bonuses, and tuition reimbursement arrangements whereby an employer agrees to pay educational expenses in exchange for the employee’s agreement to work for the employer for a minimum time period. Employers who offer these benefits, or otherwise have programs or policies whereby an employee must “repay” an employer, should pay particular attention to new state laws and regulations to ensure continued compliance.

Be familiar with applicable agreements and what is (and isn’t) covered

States that have delved into regulation of employee repayment agreements have referred to such agreements as “TRAPs” or “stay-or-pay” arrangements.  The acronym “TRAP” refers to “training repayment agreement provisions[.]” However, the scope of these laws extends far beyond agreements that require employees to repay employers for the cost of training.  

Generally, state laws restricting or regulating so-called “TRAP” arrangements cover any employer program, policy or arrangement whereby an employee must pay back an employer or face monetary penalties if they leave their job before a specific amount of time. Notably, these restrictions are not limited to arrangements that seek to recover the employer-paid costs of training or tuition reimbursement; they also extend to relocation bonuses, sign-on bonuses, retention bonuses, and other types of payments where the employer requires an employee to repay money if they leave before a specified amount of time.

Notably, benefits or bonuses provided to an employee free and clear of any repayment obligation are not “TRAP” agreements, because the employee is not required to repay any monetary amount to the employer. For example, a signing bonus provided to an employee without any requirement that the employee repay the monetary amount if the employee leaves employment within one year would not be implicated by state TRAP laws. However, if the same employer required the employee to repay the sign-on bonus amount if the employee left employment within one year, TRAP laws would be implicated.

Be familiar with applicable agreements and the legal landscape in your state

Many companies offer sign-on, relocation or retention bonuses for executive-level employees. Similarly, many companies offer tuition reimbursement programs for employees holding advanced degrees or requiring specialized education or licensing. But given the lack of direct regulation by states until recent years, most companies have not considered TRAP laws when implementing such programs.

Recent legislation in California and New York illustrate the growing trend toward regulation of employee repayment obligations. Effective January 1, 2026, California employers may not include in an employment contract, or require as a condition of employment, any provision that requires a worker repay a debt when they terminate employment. Similarly, effective December 19, 2026, New York generally will prohibit an employer from requiring an “employment promissory note” as a condition of employment, defined broadly to include any agreement that requires payment to the employer for leaving before a stated time. New York’s law applies to agreements in effect after December 19, 2026, so employers must make necessary changes to any agreements anticipated to extend beyond that date.

The California and New York laws each contain specific exceptions. California law provides a narrow exception allowing a repayment obligation for tuition for a transferable credential at certain accredited institutions within the state. Employers are allowed to require such repayment only if:

• the obligation is set forth in a separate, voluntary agreement;
• the credential is portable beyond the identified company; 
• the amount is specified and capped at actual cost; 
• repayment is prorated with no acceleration; and 
• if the employee is terminated, repayment is only recoverable if the employee is terminated for misconduct.

The exception is narrow and generally does not apply to routine, employer-provided training.

The law’s “outset of employment” exception may be more useful. Employers that provide discretionary and unearned monetary payments at the outset of employment may claw those payments back if an employee leaves before a designated period of employment. Requirements for these arrangements include:

• a stand-alone agreement outlining required terms;
• at least five business days for the employee to consider the agreement;
• the candidate must be provided notice of the right to consult counsel;
• the repayment amount must be interest-free and prorated;
• the retention period must be two years or less;
• the repayment obligation can be enforced only if the employee resigns, or is terminated for misconduct; and
• the employee must be allowed the opportunity to defer receipt of the money until the end of the retention period, thereby avoiding a repayment obligation entirely.

New York’s statute is comparatively narrow and preserves certain commonly used incentive arrangements. While New York generally prohibits employers from requiring an “employment promissory note” as a condition of employment, that term is defined in a way that leaves room for many common incentive and repayment arrangements—so long as they are structured carefully and fit within one of the statute’s carve‑outs.

New York permits repayment obligations for bona fide educational expenses, but only where the education leads to a credential that is portable and useful beyond your organization (for example, a degree, license, or industry‑recognized certification). As in California, this exception is not meant to cover routine onboarding, internal training, or company‑specific skill development. To be permitted in New York, the arrangement must: 

• be voluntary;
• be set out in an agreement that is separate from an employment agreement or offer letter;
• disclose the actual amount subject to repayment, capped at the employer’s actual cost;
• prorate repayment over time with no interest or acceleration; and
• limit repayment to voluntary quits or terminations for misconduct.

The New York TRAP law also permits repayment of “non-educational incentive not tied to specific job performance” (for example, sign-on bonuses, retention bonuses, relocation bonuses) if they are not tied to specific job performance and are structured to meet the new requirements. An employer can require repayment if an employee leaves before a specified time period in circumstances where the employee resigns or is terminated for misconduct. In addition, repayment cannot be enforced if the employee can show that the duties or requirements of the job were materially misrepresented at hire.

Other states have implemented, or are considering implementing, laws regulating TRAP agreements. A new Washington law, going into effect on June 30, 2027, will prohibit repayment agreements that are triggered upon an employee’s leaving employment to “engag[e] in a lawful profession, trade or business of any kind.” Similarly, Colorado law prohibits employers from seeking repayment when such repayment is triggered by an employee’s leaving to work for a competitor.  Other states, including Connecticut, Michigan, Indiana, Louisiana, Montana, Oklahoma, Georgia, Illinois, Virginia and Wyoming have state law or caselaw that either prohibit or limit the use of repayment agreements.

Employers with repayment agreements must also consider, in addition to specific TRAP laws, whether their programs implicate other employment law restrictions. For example, many states limit or prohibit an employer’s ability to deduct wages from an employee’s final pay. In those states, an employer might be prohibited from recovering a payment through a deduction against an employee’s wages, even if there is no specific TRAP law in effect. 

Take a census of current practices and implement necessary compliance steps

Life science employers should proactively evaluate existing repayment agreements before new restrictions take effect. 

As a first step, employers should identify whether they have repayment agreements and conduct a census of the impacted employees and states. In states where there are current or pending TRAP laws, employers should ensure that employee-facing documents do not include repayment obligations that are not otherwise permitted. 

Employers in California and New York should also revise offer letters or tuition assistance agreements to ensure they contain the required terms and conditions outlined in California and New York laws. Employers might consider the value of the administrative ease of having a universal approach against a jurisdiction-specific approach, particularly as additional states evaluate similar legislation. Finally, employers must stay abreast of this rapidly evolving area, including tracking developments at the state level. 

As competition for highly skilled scientific, technical, and executive talent continues across the life sciences sector, employers will remain motivated to use sign-on bonuses, relocation assistance, retention incentives, and tuition-reimbursement programs. Those programs can still serve important business objectives, but they now require closer legal scrutiny. Organizations that review existing arrangements, update template agreements, and monitor emerging state-law developments will be better positioned to retain talent while minimizing compliance risk.

Photo: John-Kelly, Getty Images

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