The Act bars “employment promissory notes,” which the Act broadly defines as “any instrument, agreement, or contract provision that requires an employee to pay the employer . . . a sum of money if the employee’s employment relationship with a specific employer terminates before the passage of a stated period of time.”
One of the most important impacts of the Act will be that employers will no longer be able to recoup many types of employee training costs. Additionally, the Act prohibits agreements requiring employees to pay liquidated damages to employers who sponsored them for green cards if the employment relationship terminated within a certain period after the green card is granted.
For example, a restaurant might sponsor a chef from overseas who has specialized skills and require the chef to remain employed for a certain period after obtaining a green card or repay certain costs if the chef leaves early. Under the new law, an employer generally cannot use a repayment requirement to prevent that employee from leaving once the employee is legally able to work elsewhere. In practical terms, restaurant owners should be cautious about agreements that effectively put a price tag on an employee’s decision to leave.
There are, however, some important exceptions regarding some education costs and other bonuses. Employers may still enter into certain agreements requiring employees to repay the cost of obtaining a “transferable credential.” This generally means a degree, license, certificate, or other recognized qualification that the employee can take with them and use to obtain other employment. A college degree or professional license, for example, may qualify; however, training that is useful only to the particular employer likely will not. Mandatory safety and compliance training also does not qualify for this exception.
Employers wishing to use this exception will need a separate written agreement that satisfies specific requirements. Among other things, obtaining the credential cannot be a condition of employment, the repayment obligation must be clearly stated and prorated over the required employment period, and repayment generally cannot be required when the employer terminates the employee, except in cases involving misconduct.
Similarly, employers may still be able to require repayment of some signing and relocation bonuses when an employee leaves before an agreed-upon date. However, repayment also cannot be required if the employer terminated the employee for a reason other than misconduct, or if the employer misrepresented the duties or requirements of the job.
The Act provides employees with several ways to challenge prohibited repayment agreements. An employee may file a complaint with the New York Department of Labor, and violations can result in penalties ranging from $1,000 to $5,000.
Additionally, there can be consequences for an employer that attempts to enforce an agreement prohibited by the Trapped at Work Act. If an employee successfully defends against the employer’s claim, the employer may be responsible for the employee’s attorneys’ fees.
Employers should review any employment agreements, training reimbursement agreements, signing and relocation bonus agreements and immigration-related agreements that require repayment. While this does not eliminate every type of repayment agreement, it substantially changes when they may be used. Employers should review these agreements with counsel to ensure compliance with the new law and determine whether existing repayment provisions remain enforceable.
Paul P. Rooney is a Partner at Ellenoff Grossman & Schole LLP. He specializes in employment law and civil litigation, and advises clients about their legal rights and responsibilities, drafts employment agreements, handbooks, and policies, and performs employment-related corporate due diligence.
His cases have included numerous collective actions under The Fair Labor Standards Act, and claims under Title VII of the Civil Rights Act of 1964, and The New York State and City Human Rights Laws. Mr. Rooney has also litigated cases involving covenants not to compete, claims of breach of contract and breach of fiduciary duty, and defamation. Paul P. Rooney (prooney@egsllp.com) can be reached via phone at 212-370-1300.
