Replacing an employee is expensive. Studies routinely estimate the cost of turnover at one-half to two times the departing employee’s annual salary once recruiting, training, and lost productivity are counted. At the same time, the legal tools employers traditionally used to hold on to talent are shrinking. As we discussed in April, noncompete agreements are banned or restricted in a growing number of states, and as explained below, “stay-or-pay” repayment provisions are now under direct legislative attack, including in New York. The result is a fundamental shift: retention can no longer be engineered through restriction. It has to be earned, and the agreements that support it must be drafted with far more care.
Retention Bonuses and Deferred Compensation
Financial incentives that reward staying, rather than penalize leaving, remain fully available and increasingly important. Retention bonuses payable after a defined period of service, deferred compensation arrangements, phantom equity, and long-term incentive plans all give valuable employees a concrete reason to remain. The drafting details matter: vesting schedules, the treatment of terminations without cause, and, for deferred arrangements, compliance with the strict timing rules of Internal Revenue Code Section 409A, where missteps create severe tax consequences for the employee.
The key legal distinction running through this entire area is the difference between an employer paying an employee to stay and an employer requiring an employee to pay for leaving. The first is a bonus; the second is increasingly likely to be unlawful.
The Crackdown on “Stay-or-Pay” Provisions
For years, many employers used training repayment agreement provisions (sometimes called TRAPs) and similar clauses requiring employees to reimburse training costs, sign-on bonuses, or relocation expenses if they left before a set date. That landscape has changed dramatically.
New York enacted the Trapped at Work Act in December 2025, prohibiting employers from requiring, as a condition of employment, any “employment promissory note,” meaning a contract term that obligates an employee to pay the employer a sum of money if the employment relationship ends before a stated period. Amendments signed in February 2026 delayed enforcement to February 2027 and clarified important carve-outs: employers may still require repayment of tuition for a transferable credential if the agreement is separate from the employment contract, caps repayment at actual cost, prorates the obligation, and waives it unless the employee is terminated for misconduct. Repayment of sign-on bonuses, relocation assistance, and similar non-performance benefits remains permissible within similar limits. Violations carry civil penalties of $1,000 to $5,000 each, and an employee who defeats an employer’s attempt to enforce a void agreement can recover attorneys’ fees.
New York is not alone. California’s AB 692 voids most stay-or-pay provisions in new contracts and creates a private right of action with damages of at least $5,000 per worker. Colorado, Connecticut, and other states impose their own limits, and more bills are pending nationwide. Multistate employers should assume that any repayment provision needs state-by-state review, and New York employers should use the runway before the Trapped at Work Act takes effect to inventory offer letters, bonus plans, relocation agreements, and training contracts.
Compensation Transparency and Internal Mobility
Retention also has a compliance dimension on the front end. New York State’s pay transparency law requires compensation ranges in advertisements for jobs and promotion opportunities, and employees increasingly compare their pay against the ranges employers must publish. Organizations that maintain defensible, consistent compensation structures, and that advertise internal promotion opportunities rather than quietly filling them, tend to retain employees longer and face fewer pay-equity claims. Flexible and hybrid work arrangements operate the same way: they are powerful retention tools, but they must be administered consistently and with wage-and-hour compliance in mind for non-exempt staff.
Culture, Feedback, and Documentation
Finally, the unglamorous fundamentals remain the most effective retention strategy of all. Exit interviews tell you why people left; stay interviews, periodic conversations about what keeps employees engaged and what might drive them away, let you act while it still matters. Fair, well-documented performance management serves double duty: employees who understand expectations and receive honest feedback stay longer, and when separation does occur, the documentation protects the organization. As we noted in our March article on managing performance conversations across generations, feedback practices that account for a multigenerational workforce reduce both friction and turnover.
Takeaway
The era of retaining employees by making it costly to leave is ending. Noncompete agreements are narrowing, and stay-or-pay provisions are being legislated away, with New York’s Trapped at Work Act arriving within the year. Employers should redirect their energy in two directions: first, toward affirmative incentives, including retention bonuses, deferred compensation, transparent pay practices, and genuine growth opportunities; and second, toward a careful legal review of every existing repayment, clawback, and training agreement before the new laws take hold. The organizations that retain talent in this environment will be the ones that make staying attractive, and that make sure the agreements supporting their programs can actually be enforced.