Stay-or-Pay Contracts Are Under Fire, and Employers Should Pay Attention
- 7 days ago
- 3 min read
Employers are in a tough position. Training costs money, time, and attention. So the question is fair: if a company invests in an employee, what guarantee does it have that the employee will stay long enough for that investment to pay off? Increasingly, the answer is not a stay-or-pay contract.
These agreements, often called Training Repayment Agreement Provisions or TRAPs, require workers to repay training costs if they leave before a certain date. Regulators and lawmakers are taking a harder look at them because they can function less like a fair cost-recovery tool and more like a penalty that limits worker mobility. The Consumer Financial Protection Bureau (CFPB) has said it is evaluating TRAPs and other employer-driven debt for potential violations of consumer financial laws.
California has taken the strongest position so far. AB 692, effective for contracts entered into on or after January 1, 2026, makes it unlawful to include terms in an employment contract that require a worker to repay a debt, restart collection on a debt, or pay a penalty, fee, or cost if the employment relationship ends.
New York has moved in a similar direction through its Trapped at Work Act. That law prohibits employers from requiring employees or applicants to sign an “employment promissory note” as a condition of employment and declares those notes unconscionable, against public policy, unenforceable, and void.
Colorado is not a full ban, but it sharply limits these agreements. Under Colorado law, recovery of training costs is allowed only in narrow situations, including where the training is distinct from normal on-the-job training and the repayment amount decreases proportionally over time.
Federal law can come into play too. The Fair Labor Standards Act requires wages to be paid “free and clear,” and federal regulations say wage requirements are not met where an employee must kick back part of their wages to the employer for the employer’s benefit. That means a repayment arrangement or paycheck deduction can create wage-and-hour problems if it cuts into minimum wage or overtime.
The business problem behind all of this is real. Employers want to invest in development without feeling like they are funding someone else’s next employer. But the data suggests coercion is not the best answer. Gallup found that organizations making a strategic investment in employee development report 11% greater profitability and are twice as likely to retain employees.
Here are three better ways to reduce the risk that employees leave after training.
Connect development to visible opportunity. Training works better as a retention tool when employees can see where it leads, whether that is advancement, expanded responsibility, or a transferable credential.
Second, improve the manager experience. People often leave managers, not training programs. If a trained employee returns to poor communication, weak support, or no recognition, the investment is less likely to stick. Gallup’s recognition research found well-recognized employees were 45% less likely to leave over two years.
Reward staying instead of punishing leaving. Lawful retention bonuses, milestone incentives, and real career pathways are more durable and less risky than trying to collect money after the fact. That is where the law is heading, and smart employers should pay attention.
The employers who get this right will not be the ones writing the toughest repayment clause. They will be the ones building workplaces people do not want to leave.