When you have to pay money to your employer if you leave your job

Most people go to work to earn their salary and benefits. What they usually don’t expect is having to come back part of the money when they leave.

But with certain benefits — such as signing or retention bonuses, tuition reimbursement, and certain forms of training — workers may have to reimburse their employer if they are subject to a so-called stay or pay agreement, which specifies that the employee will have to reimburse the company for the cost of certain benefits if they do not stay with the organization for a minimum period of time.

For what? On the one hand, “employers are trying to get a reasonable return on their investment,” said Jonathan Crook, a partner at Fisher Phillips who represents management in labor and employment matters.

In other words, paying for benefits intended to attract or retain employees only for them to benefit and then quit – and potentially work for a competitor – does not provide a great return on investment for the employer.

But there are cases where “stay or pay” agreements are considered abusive and limiting employee mobility, particularly when they apply to low-income workers and involve so-called training reimbursement agreements (sometimes called, notably by critics, TRAP).

“TRAPs are often imposed on workers as a condition of employment and require workers who receive on-the-job training – regardless of the quality or necessity of that training – to repay the assumed cost if they leave their job before the end of a specified period,” Chris Hicks, senior policy advisor for the consumer advocacy group Protect Borrowers, wrote in a blog.

For example, they may charge a severance fee of several thousand dollars if an employee leaves for another job.

Even if a contract isn’t enforced, labor rights advocates say, just knowing about it can still cause employees to stay rather than seek better employment elsewhere.

It is unclear how widespread stay or payment arrangements are. Researchers from the University of Michigan, Cornell University and the University of Maryland estimated that such agreements – ranging from on-the-job training to paying for an employee’s MBA program – could affect up to 1 in 11 workers (8.7%).

Historically, according to 2023 Report of the Consumer Financial Protection Bureau, “Employer use of TRAPs began in the 1990s, primarily for higher-skilled, higher-paying positions, such as engineers, stock brokers, and airline pilots. Still used in these industries, they are now also common in lower- and moderate-wage industries where jobs are disproportionately held by women and minorities, such as in the healthcare, transportation and retail sectors. ”

Earlier this week, California Governor Gavin Newsom signed legislation, a first in the country. measure prohibiting certain stay or payment arrangements and putting guardrails around others. It takes effect on January 1, 2026.

Among the new bans: California-based employers cannot seek reimbursement for on-the-job training, except for apprenticeship programs approved by the Learning Standards Division. And they cannot request reimbursement for any type of benefit when a worker is fired without cause or their job is eliminated.

But the new law still allows employers to impose certain types of stay or payment agreements if they follow certain safeguards. Among those still permitted in addition to approved apprenticeship programs are signing or retention bonuses, government-sponsored loan repayment assistance, and tuition reimbursement, but only for “transferable credentials” (i.e., a degree or certificate issued by an accredited third party that is not specific to the person’s job). In terms of bonuses and tuition reimbursement, if an employee leaves earlier than the period of stay, the amount they must repay must be prorated. So, if an employee receives a signing bonus but only stays with the company for half the required time, they will only have to pay the company half the amount when they leave.

Employees should also be given the option to collect their bonus when they leave the company rather than when they join, so as not to risk owing money if they leave before the end of the stay period – which will now be limited to two years and cannot include accrued interest.

The move was praised by the California Nurses Association, which represents one of the industries where such stay-or-pay arrangements have been used. “With the threat of having to repay a debt or fee to their employer, ‘stay or pay’ contracts force contract workers to keep their jobs and discourage them from seeking better wages or working conditions,” the union said in a statement.

It’s too early to predict how the new law will influence how employers operating in several states, including California, might draft their own suspension or payment provisions, Crook said.

Or how many other states might follow in California’s footsteps.

Protect Borrowers notes that there have been legislative efforts to restrict suspension or payment agreements in several other states, including New York, which passed the “Trapped at Work” law in June, although it has not yet been signed by Gov. Kathy Hochul.