Key Takeaways
- The New York State Department of Labor (NYDOL) released guidance addressing several open questions under New York’s Trapped at Work Act (the Act), which takes effect Dec. 19.
- The NYDOL confirms that the Act applies only to new agreements, or new or amended terms in existing agreements, entered into on or after the effective date.
- The guidance also explains when voluntary repayment arrangements fall outside the Act and provides additional clarity on bonus and relocation payments, educational expenses, and the meaning of “misconduct” for purposes of determining when an employer may enforce a repayment agreement against an employee who has been terminated.
As detailed in our prior alert, on Feb. 13, Gov. Kathy Hochul signed a chapter amendment to the Act, which generally prohibits employers from requiring employees or prospective employees, as a condition of employment, to agree to repay the employer if their employment ends before a specified period. The law includes several exceptions, including for certain tuition repayment agreements, financial bonuses, relocation assistance and other noneducational incentives, among others. Earlier this year, amendments to the Act delayed its effective date to Dec. 19 and clarified the scope of these exceptions. The NYDOL has now issued guidance on the Act, which provides employers with some additional clarity as they seek to comply with the Act’s terms.
The Act’s Scope and Application
While the Act itself is silent on whether it applies retroactively or otherwise affects existing repayment agreements, the NYDOL guidance confirms the Act applies only to agreements, or to new or amended terms in existing agreements, that are entered into on or after Dec. 19. Accordingly, the guidance indicates an existing repayment agreement is not subject to the Act merely because it remains in effect after Dec. 19, although new or amended terms entered into on or after that date will need to comply with the Act.
The guidance also explains that an employment promissory note need not be in writing. As a result, employers should consider repayment requirements reflected in policies and other arrangements, not only formal written agreements.
The guidance therefore gives employers additional clarity as they assess which existing arrangements and practices should be reviewed before the Act takes effect.
Voluntary Repayment Arrangements May Fall Outside the Act
The guidance also provides important information concerning voluntary repayment arrangements. Because the Act prohibits employment promissory notes imposed as a condition of employment, the NYDOL explains that an agreement falls outside the Act’s prohibition where it is truly voluntary and separate from maintaining or accepting employment, such that an employee can begin or continue employment without agreeing to its terms.
The NYDOL illustrates this distinction with an example of a performance-based compensation agreement. According to the NYDOL, if an employer offers an employee the option of receiving an upfront payment tied to future performance targets, subject to repayment if the employee does not hit those targets or deferring the payment until after the employee achieves the performance targets, that repayment agreement is lawful. In this example, because accepting the upfront payment is optional and not a condition of employment, the repayment arrangement is permissible under the Act.
Another type of voluntary repayment agreement the NYDOL considers permissible is an employer’s advance of paid leave time to an employee. According to the NYDOL, if an employer agrees to advance paid leave time to an employee and the employee leaves before an agreed-upon date when the leave is earned, the employer can require repayment of the advanced paid leave because accepting it was not a condition of employment.
Further Guidance on Permissible Repayment Agreements
Bonuses, Relocation Assistance and Noneducational Incentives/Benefits
The NYDOL guidance also discusses repayment obligations involving sign-on bonuses, relocation assistance, and other non-educational incentives that are not tied to specific job performance. These types of arrangements may require repayment when an employee voluntarily resigns or when the employer terminates the employee for misconduct before an agreed-upon date.
The guidance confirms that these types of repayment are permissible, so long as the employer has not misled the employee about the job requirements. By contrast, employers cannot require these types of payments when the employer terminates the employee for a reason other than misconduct or when the employee resigns after being misled about the position.
The guidance also clarifies two concepts central to applying this exception. First, the Act’s use of “terminated” means that the employer initiated the end of the employment relationship, resolving potential ambiguity about voluntary resignations. Second, the NYDOL defines “misconduct” as behavior detrimental to the employer’s interests or in violation of some reasonable work condition, including conduct that an employer’s policy may define as “for cause” in a termination decision.
Education-Related Repayment Agreements
The NYDOL guidance further elaborates on the Act’s exception for certain agreements involving transferable credentials. Qualifying credentials may include degrees, diplomas, licenses, certificates, and documented evidence of skill proficiency or course completion that employers widely recognize in the relevant industry as a qualification for employment or that demonstrably enhance the employee’s employability with other employers in that industry. Employer-specific or nontransferable training and mandated safety and compliance training, however, do not qualify as transferable credentials; therefore, employers may not mandate repayment agreements for the costs associated with such training.
Notably, the NYDOL confirms that exam and licensing fees may qualify as permissible educational expenses when they are part of obtaining the transferable credential, such that employers may require repayment of such fees as well.
Additional Clarifications
The NYDOL guidance also identifies two additional types of arrangements that fall outside the Act’s prohibition. First, the Act does not apply to arrangements that are not between an employer (or its agent or assignee) and an employee, such as a loan-forgiveness program between a lender and borrower that depends on continued employment. Second, the Act does not apply to agreements expressly allowed or required under statute or common law, including, for example, lawful wage advances under New York Labor Law § 193 (Section 193) and applicable regulations.
Although lawful wage advances under Section 193 fall outside the Act’s prohibition, the recovery of those advances remains subject to Section 193’s strict and separate wage-deduction requirements. A repayment obligation that is permissible under the Act does not necessarily authorize an employer to deduct the amount from an employee’s wages. Employers should therefore ensure that any wage deduction used to recover a repayment obligation complies with Section 193 and its implementing regulations.
Next Steps for Employers
With the Dec. 19 effective date approaching, employers with New York employees should review existing bonus, relocation, tuition and other repayment arrangements and determine whether any new or amended agreements will comply with the Act. In particular, employers should assess whether repayment arrangements are genuinely voluntary and separate from accepting or maintaining employment or, if imposed as a condition of employment, satisfy one of the Act’s statutory exceptions. Where an arrangement is intended to be voluntary, employees should be able to decline it without affecting their employment. Employers should also review educational repayment arrangements to confirm that they involve a qualifying transferable credential and that any repayment obligation is limited to qualifying costs actually paid by the employer.
Please contact the authors of this alert or your BakerHostetler attorney contact if you have any questions.
