Lexology reports that several states, including California, Colorado, Connecticut and New York, have recently passed or proposed legislation limiting or banning the use of stay-or-pay agreements, which require workers to reimburse their employer for sign-on bonuses, relocation expenses, education, training or other costs if their employment ends before a specified date or time period.
According to Sheppard labor and employment partner Lindsay Stone, “Use of stay-or-pay agreements is widespread across a variety of sectors, though we tend to see them more regularly used in sectors that have high upfront training or certification costs and those that demand specialized skills that are difficult to replace quickly.” Though she expects more states to continue moving towards the restrictive trend, she does not anticipate the issue gaining traction as a federal priority.
Employers should monitor legislation to ensure compliance with the evolving patchwork, carefully review their agreement language to ensure they follow any procedural requirements for valid execution and enforcement and consider using positive retention incentives instead of stay-or-pay provisions to reduce compliance burdens.
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