Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates

State Enforcement of Employee Training Repayment Contracts Gains Momentum

Skadden Insights – September 2025

Margaret E. Krawiec Meredith C. Slawe Todd D. Kelly

Key Points

  • State attorneys general have increased enforcement actions and several states have passed or advanced legislation targeting employee training repayment agreement provisions, or TRAPs.
  • These developments signal heightened legal risk for employers — especially in health care and other industries using TRAPs — who may face penalties or litigation if their contracts are noncompliant.
  • Companies should consider reviewing and updating employment agreements to ensure compliance with evolving state and federal laws, and closely monitoring ongoing regulatory and enforcement trends regarding TRAPs.

__________

On September 5, 2025, the Federal Trade Commission (FTC) notified the U.S. Court of Appeals for the Fifth Circuit that it will no longer pursue its appeal in Ryan, LLC v. FTC, where a district court struck down its recently promulgated noncompete clause rule. However, while the FTC has acceded vacatur, companies should be aware of recent trends in state enforcement of certain types of noncompete clauses.

A recent high-profile enforcement action as well as new legislation in a number of states suggest that state attorneys general are looking to rein in contracts — such as training repayment agreement provisions (known as TRAPs) — that require employees to pay back certain expenses if they leave the company within a certain time frame.

States Move To Enforce and Regulate TRAPs

In July 2025, the attorneys general of California, Colorado and Nevada announced a settlement with a large health care operator related to allegations that it had violated the states’ consumer protection laws by using TRAPs in nurses’ employment contracts.

The states alleged that the health care operator required entry-level nurses to complete a special training for registered nurses and that the nurses would have to repay the cost of the training if they did not maintain their employment for a two-year period. The monetary penalty to the three states for the health care operator was $3 million combined.

Several states have also advanced anti-TRAP regulations: 

  • New York: In June 2025, the Legislature passed the Trapped at Work Act, which would prohibit employers from requiring employees to sign a TRAP to obtain employment. The bill awaits Gov. Kathy Hochul’s signature. 
  • Indiana: A law implemented in May 2025 prevents noncompetes, including TRAPs, for any physicians.
  • California: In June 2025, the California Assembly passed AB 692, which would strengthen the state’s anti-TRAP regulations. The bill was passed to the Senate, where it has gone through the committee process and is awaiting a final vote.

Nevada, Ohio, Vermont, and Washington have also introduced legislation that would prohibit TRAPs, but those bills have not progressed out of their legislatures.

While it appears that the states are the more likely source of enforcement on these contracts, there is still a possibility of federal enforcement. Outside of the FTC, the Department of Labor (DOL) could pursue actions related to TRAPs. Under the Biden administration, DOL filed two lawsuits alleging that provisions requiring workers to pay back wages if the workers did not stay for a certain period of time violated the Fair Labor Standards Act.1 The DOL reached resolution with both parties, dismissing one action and filing a pending consent judgment with the other.

Practice Points

Companies that want to proactively reduce risk should consider:

  • Reviewing any provisions in their employment contracts that require repayment of training fees or other costs if an employee terminates their employment before a certain term, to ensure they are compliant with applicable state laws. 
  • Watching for developing federal and state regulations regarding these provisions.

____________________

1 Chavez-DeRemer v. Advanced Care Staffing, LLC, 23-cv-02119-NRM-MMH (E.D.N.Y.); Su v. Smoothstack, Inc., 1:24-cv-02295-RDA-LRV (E.D. Va.).

This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.

BACK TO TOP