# Stay-or-Pay and Employee Repayment: When a Worker Can Be Made to Pay an Employer Back Across the United States[^about] The cross-state framework for stay-or-pay and employee-repayment terms — whether a repayment obligation is enforceable, whether an employer can claw back pay already earned, when repayment can come out of the final paycheck, and how training-repayment agreements are treated — with links to the per-state practice notes and the 50-state survey. A stay-or-pay term is a promise that a worker will pay an employer back — a signing bonus, a training or tuition cost, a relocation payment, or a flat exit fee — if the worker leaves before a set date. These terms go by many names: repayment agreements, training-repayment-agreement provisions (TRAPs), retention clawbacks, and exit fees. Whether one is enforceable, and how far it can reach, depends almost entirely on the law of the governing state, but a single analytical spine runs through every US jurisdiction: the difference between compensation a worker has already earned, which the law is reluctant to let an employer recover, and a benefit the worker has not yet earned, which an employer can usually condition on staying. This note explains that earned-versus-forfeitable spine and links to the per-state practice notes — [California](/practice-guides/stay-or-pay/us/california), [New York](/practice-guides/stay-or-pay/us/new-york), and [Texas](/practice-guides/stay-or-pay/us/texas) — and to the [50-state survey](/surveys/stay-or-pay/us) for the jurisdiction-specific detail. For how these terms intersect with retention pay and AI-driven layoffs, see the note on [retention bonuses under competitor and AI pressure](/practice-guides/ai-layoffs/retention-bonus-competitor-ai-pressure). ## What is the earned-versus-forfeitable line, and why does it decide everything? {#earned-vs-forfeitable} **Short answer.** The decisive question across states is whether the money at stake has already become the worker's earned compensation or is still a contingent benefit the worker has not yet earned. Earned compensation is hard for an employer to recover; an unearned, forfeitable benefit can be conditioned on continued service. New York states the distinction crisply, separating pay that is vested and mandatory from pay that is discretionary and forfeitable [^matter-of-william-mattar-p-c-v-riley-2025-ny-sli]. The same pivot appears under different labels everywhere. A retention award the worker has not yet earned can be forfeited on early departure; pay the worker has already earned is much harder to take back. New York frames it as the difference between compensation that is vested and the kind that remains contingent. "vested and mandatory as opposed to discretionary and forfeitable"[^matter-of-william-mattar-p-c-v-riley-2025-ny-sli] Whether a state voids repayment outright, blocks recovery of earned wages, or enforces repayment as an ordinary contract, the analysis still turns on this line. A forward-looking award that vests only if the worker stays is the most defensible structure in nearly every state; a clawback that tries to recover pay already earned is the most exposed. ## How widely do states differ — from outright bans to freedom of contract? {#three-regimes} **Short answer.** Enormously. At one pole, California now voids most employee repayment terms by statute for contracts entered on or after January 1, 2026 [^california-labor-code-sec-926]. At the other, Texas enforces repayment as an ordinary contract, bounded mainly by the rule that a damages amount must be a reasonable forecast of just compensation rather than a penalty [^fpl-energy-v-txu-2014]. New York sits between, with no stay-or-pay statute but a wage-law bar on recovering pay already earned. The three pilot states map the full spectrum. California is the prohibition pole: Labor Code Section 926 makes a repayment term that violates the new Business and Professions Code Section 16608 void as a matter of public policy. "A contract or contract term that violates Section 16608 of the Business and Professions Code is void as contrary to public policy only if entered into on or after January 1, 2026."[^california-labor-code-sec-926] Texas is the freedom-of-contract pole: a repayment term is enforced like any other contract, and the main limit is the penalty doctrine, which asks whether the amount is a genuine estimate of harm. "the amount of liquidated damages called for is a reasonable forecast of just compensation"[^fpl-energy-v-txu-2014] New York occupies the middle: no statute targets stay-or-pay, but an employer cannot claw back compensation that has already vested, so the lever only works while the award remains genuinely unearned. Read the per-state notes for the controlling rule in each jurisdiction — [California](/practice-guides/stay-or-pay/us/california), [New York](/practice-guides/stay-or-pay/us/new-york), and [Texas](/practice-guides/stay-or-pay/us/texas) — and the [50-state survey](/surveys/stay-or-pay/us) for the rest. ## What recurring limits must a stay-or-pay term survive? {#drafting-spine} **Short answer.** Three limits recur across states even where repayment is allowed. The amount must look like recoupment of a real cost, not a penalty [^fpl-energy-v-txu-2014-drafting]; taking the money out of a paycheck usually requires the worker's written authorization [^tex-labor-code-61-018]; and the award is safest when framed as forfeitable and unearned rather than as a clawback of pay already vested [^matter-of-william-mattar-p-c-v-riley-2025-ny-sli-drafting]. Whatever a state's headline rule, three drafting questions tend to decide a stay-or-pay term's fate. First, is the figure tied to a documented, prorated cost so it reads as a reasonable forecast of harm rather than a punitive penalty [^fpl-energy-v-txu-2014-drafting]. Second, is any deduction from wages authorized — many states, like Texas, bar an employer from withholding wages without a court order, a statute, or the worker's written authorization [^tex-labor-code-61-018]. Third, is the money structured as a benefit the worker earns only by staying, so an early exit is a forfeiture rather than a recovery of vested pay [^matter-of-william-mattar-p-c-v-riley-2025-ny-sli-drafting]. > [!NOTE] > **Practice note.** > > Do not reuse one stay-or-pay clause across states. A term that is enforceable in Texas can be void in California and can fail in New York if it tries to recover earned wages. Start with the governing state's note and the [50-state survey](/surveys/stay-or-pay/us), tie any amount to a real prorated cost, secure written authorization before any wage deduction, and prefer a forfeitable, unearned award over a clawback [^fpl-energy-v-txu-2014-drafting][^tex-labor-code-61-018][^matter-of-william-mattar-p-c-v-riley-2025-ny-sli-drafting]. [^about]: By Steven Obiajulu, J.D. Published by [openagreements.org](https://openagreements.org). Last reviewed 2026-06-30. License: CC BY 4.0. Steven Obiajulu, J.D. edits this topic article for Federal + 50-state coverage. It synthesizes legal sources and is not legal advice. This article is for informational purposes only and does not create an attorney-client relationship. [^matter-of-william-mattar-p-c-v-riley-2025-ny-sli]: **Matter of William Mattar, P.C. v. Riley, 2025 NY Slip Op 02680** — "vested and mandatory as opposed to discretionary and forfeitable" *Matter of William Mattar, P.C. v. Riley, 2025 NY Slip Op 02680.* [^california-labor-code-sec-926]: **California Labor Code Sec. 926** — "A contract or contract term that violates Section 16608 of the Business and Professions Code is void as contrary to public policy only if entered into on or after January 1, 2026." *California Labor Code Sec. 926.* [^fpl-energy-v-txu-2014]: **FPL Energy, LLC v. TXU Portfolio Mgmt. Co., 426 S.W.3d 59 (Tex. 2014)** — "the amount of liquidated damages called for is a reasonable forecast of just compensation" *FPL Energy, LLC v. TXU Portfolio Mgmt. Co., 426 S.W.3d 59 (Tex. 2014).* [^fpl-energy-v-txu-2014-drafting]: **FPL Energy, LLC v. TXU Portfolio Mgmt. Co., 426 S.W.3d 59 (Tex. 2014)** — "the amount of liquidated damages called for is a reasonable forecast of just compensation" *FPL Energy, LLC v. TXU Portfolio Mgmt. Co., 426 S.W.3d 59 (Tex. 2014).* [^tex-labor-code-61-018]: **Tex. Lab. Code § 61.018** — "An employer may not withhold or divert any part of an employee's wages unless the employer: (1) is ordered to do so by a court of competent jurisdiction; (2) is authorized to do so by state or federal law; or (3) has written authorization from the employee to deduct part of the wages" *Tex. Lab. Code § 61.018.* [^matter-of-william-mattar-p-c-v-riley-2025-ny-sli-drafting]: **Matter of William Mattar, P.C. v. Riley, 2025 NY Slip Op 02680** — "vested and mandatory as opposed to discretionary and forfeitable" *Matter of William Mattar, P.C. v. Riley, 2025 NY Slip Op 02680.*