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

By Jeanne Sahadi, CNN

(CNN) — Most people go to work for the paycheck and benefits. What they typically don’t expect is to have to return some of the money when they leave.

But with some benefits — such as signing or retention bonuses, tuition reimbursement and some forms of training — workers may have to pay their employer back if they’re subject to a so-called stay-or-pay agreement, which specifies that the employee will be on the hook to repay the company for the cost of certain benefits if they don’t stay at the organization for a minimum amount of time.

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

In other words, paying for benefits intended to attract or retain employees only to have them get the benefit and then quit — and potentially work for a competitor — doesn’t offer a great ROI for the employer.

But there are some instances when “stay or pay” agreements are viewed as abusive and limiting employee mobility, especially when they apply to lower income workers and involving what are called training repayment agreements (sometimes referred to, especially by critics, as TRAPs).

“TRAPs are often forced 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 pay back the supposed cost if they leave their job before the end of a specified term,” Chris Hicks, a senior policy adviser at consumer advocacy group Protect Borrowers, wrote in a blog.

For instance, they might charge a quitting fee of thousands of dollars, should an employee leave for another job.

Even if a contract is not enforced, labor advocates say, just knowing of its existence still can pressure employees into staying rather than seeking a better job elsewhere.

It’s unclear how widespread stay-or-pay agreements are. Researchers from the University of Michigan, Cornell University and the University of Maryland estimated that such agreements — including anything from on-the-job training to paying for an employee’s MBA program — could affect as many as 1 in 11 workers (8.7%).

Historically, according to a 2023 report from the Consumer Financial Protection Bureau, “Employers’ use of TRAPs began in the 1990s, predominantly for higher-skilled, higher-wage positions, such as engineers, securities brokers, and airline pilots. Still in use in those 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 industries.”

New California law bans certain provisions, allows others

Earlier this week, California Governor Gavin Newsom signed into law a first-in-the-nation measure banning certain stay-or-pay provisions and putting guardrails around others. It takes effect on January 1, 2026.

Among the new prohibitions: California-based employers may not seek repayment for on-the-job training, except for apprentice programs approved by the Division of Apprenticeship Standards. And they may not seek repayment for any type of benefit when a worker is let go without cause or their job is eliminated.

But the new law still allows employers to impose some types of stay-or-pay agreements if they meet certain guardrails. Among those still allowed in addition to approved apprentice programs are signing or retention bonuses, government-sponsored loan repayment assistance and tuition reimbursement but only for “transferable credentials” (meaning a degree or certificate from an accredited third party that is not specific to the person’s job). In terms of bonuses and tuition reimbursement, if an employee leaves sooner than the stay period, the amount of money they need to repay must be prorated. So if an employee gets a signing bonus but only stays at the company for half the time required, they will only need to pay the company half the amount when they leave.

Employees also must have the option to take their bonus when they leave the company rather than when they start, so they don’t risk owing money if they leave before the end of the stay period — which will now be limited to two years and may not include interest accrual.

The move was welcomed by the California Nurses Association, which represents one of the industries in which such stay-or-pay agreements have been used. “With the threat of having to pay back a debt or fee to their employer, ‘stay-or-pay’ contracts indenture workers to remain at a job and chills workers from seeking better wages or working conditions,” the union said in a statement.

It is too early to predict how the new law will influence the way employers operating across multiple states, including California, might draft their own stay-or-pay provisions, Crook said.

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

Protect Borrowers notes that there have been legislative efforts to restrict stay-or-pay agreements in several other states, including New York, which passed the “Trapped at Work Act” in June, although it has yet to be signed by Governor Kathy Hochul.

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