TRAP Agreement | AB 692 & 29 CFR 531.35 Compliant

A training repayment agreement is a written contract under which the employer funds a discrete training program and the employee agrees to reimburse a declining share of that cost if the relationship ends before a stated retention period. The balance is usually forgiven month by month across twelve, twenty-four or thirty-six months. Three features separate an enforceable clause from a penalty a court will strike: the cost is real and documented, the forgiveness runs on a straight line, and the trigger is the employee's own decision to leave.

The document is not a tuition reimbursement policy, and the difference matters more than most handbooks admit. A reimbursement policy pays the worker back after the fact and rarely creates a debt. A TRAP creates one on day one, which is why regulators have started treating some of these instruments as consumer credit. It is also not a non-compete: it puts a price on leaving rather than restricting where the employee works next, which draws scrutiny even in states that still enforce restrictive covenants. Employers who need the restriction on competition rather than the recovery of cost should reach for the non-compete and non-solicitation agreement built for all fifty states.

Enforceability rests on federal wage rules, antitrust theory and state legislation rather than on any single statute. The floor is the Fair Labor Standards Act. Under 29 CFR 531.35, wages must reach the employee "free and clear," and any arrangement that pushes money back to the employer is a kickback where it cuts into the minimum wage or overtime owed that workweek. The Seventh Circuit applied that rule in Heder v. City of Two Rivers, 295 F.3d 777, holding that a city could not recoup paramedic training costs out of wages already earned. The Ninth Circuit upheld the obligation itself in Gordon v. City of Oakland, 627 F.3d 1092, where a prorated academy repayment survived because the paychecks had been made in full and the debt sat outside the wage relationship. Together they describe the drafting target: the promise to repay can stand, the deduction from wages usually cannot. The Cornell Legal Information Institute entry on the free and clear wage payment rule at 29 CFR 531.35 sets out the operative language.

Federal antitrust exposure has shifted. The Non-Compete Clause Rule at 16 CFR part 910 was set aside in Ryan LLC v. FTC, 746 F. Supp. 3d 369 (N.D. Tex. 2024) and later removed from the Code of Federal Regulations. The theory survives. The FTC still polices restrictive employment terms case by case under Section 5 of the FTC Act, and a repayment figure large enough to lock in the worker is the fact pattern it has signalled interest in. Draft the amount to actual documented cost, never to lost productivity or replacement hiring expense. State law now does most of the work. An agreement that was routine three years ago can be void on signature today depending on where the employee works.

Healthcare drives the volume. A hospital funding a nurse residency, a critical care certification or a specialty fellowship is buying a credential the nurse can carry to any competitor within driving distance, and a written agreement is the only way to put that investment on paper. Transportation is the second cluster: carriers running in-house CDL schools sign drivers to twelve or eighteen month commitments before the first load moves. Aviation follows the same logic with type ratings. Professional services use it more selectively, from implant training in a dental group to vendor certifications for an MSP's engineers, provided the training is genuinely portable.

Two edge cases account for most of the trouble. Training the employer is legally required to provide, such as OSHA compliance, harassment prevention or standard orientation, cannot support a repayment claim, because the benefit runs to the employer and the hours are compensable work. The second is worker status: recent state prohibitions reach employees rather than independent contractors, so a funded certification for a 1099 specialist is analysed as an ordinary commercial term and belongs with your US business contract templates. Location matters as much: a Texas company hiring an engineer who lives in California will find California law governs the clause, whatever the choice of law paragraph in the at-will employment agreement says.

• The description of the funded training identifies the provider, the program, the dates and the credential obtained. Vague references to "training and development" have proved fatal in litigation, because the employer cannot then show the cost was distinct from ordinary on the job instruction, the line Colorado draws by statute.
• The documented cost schedule attaches the invoice and caps recovery at what the employer actually paid. Markups, administrative fees and estimates of lost productivity are excluded deliberately, since those convert a reimbursement clause into an unenforceable penalty.
• The prorated forgiveness table reduces the balance in equal monthly increments, with no acceleration and no interest. A worker who leaves at the halfway point owes half, and the table appears on the face of the document rather than in a cross referenced exhibit.
• The termination carve out removes any repayment obligation when the employer ends the relationship for reasons other than documented misconduct, or when the job duties were materially misrepresented at hire.
• The wage deduction language confirms that nothing will be withheld from earned wages, final pay or accrued leave without separate written authorization, and never below the minimum wage floor. Pair it at separation with the final paycheck and offboarding checklist for US employers.
• The standalone execution block keeps the agreement physically separate from the offer letter and records the date it was presented, which several statutes now require and which defeats the claim that the employee first saw it on day one.

California has closed the door. Assembly Bill 692, applying to contracts entered into on or after January 1, 2026, adds Business and Professions Code section 16608 and Labor Code section 926, making it unlawful to include a term requiring a worker to pay an employer, a training provider or a debt collector on separation. Tuition for a transferable credential, a degree from an accredited third party institution that is not required for the current job, survives only if the agreement sits outside the employment contract, states the amount in advance, caps it at cost, prorates without acceleration and imposes nothing when the employer terminates for anything short of misconduct under Unemployment Insurance Code section 1256.

New York enacted the Trapped at Work Act, adding Article 37 to the Labor Law at sections 1050 to 1055, which declares employment promissory notes unconscionable and void when required as a condition of employment. A chapter amendment narrowed coverage from workers to employees, added carve outs for bonuses, relocation assistance and transferable credentials, and pushed the effective date back by a year. Counsel disagree on whether the operative date falls in December or the following February, so work to the earlier reading.

Colorado permits the clause but boxes it in. C.R.S. 8-2-113(3)(a) allows recovery only where the training is distinct from normal on the job training, limits it to reasonable actual cost, and requires the balance to decrease proportionally by month across the two years following completion. Consumer credit disclosures must reach the worker before signature. Miss one element and the provision is void, with attorney general enforcement attached.

Texas still treats the agreement as an ordinary contract question. The live issue is whether the figure is a genuine pre estimate of cost or a penalty, the distinction drawn in Phillips v. Phillips, 820 S.W.2d 785, while Texas Labor Code section 61.018 bars wage deductions without written authorization.

Florida analyses the clause through Fla. Stat. 542.335(1)(b)5, which treats extraordinary or specialized training as a legitimate business interest. That gives a documented agreement firmer footing than in most states, provided the training goes well beyond what any employer would supply.

You begin by selecting the state where the employee actually performs the work, not where the company is incorporated. That choice drives everything downstream: the form suppresses the clause for California hires, applies the two year proportional forgiveness ceiling in Colorado, and adjusts the deduction language to local authorization rules. Next you enter the training itself, the provider, the program title, the completion date and the credential, with the documented cost that becomes the maximum recoverable amount.

The retention period comes next, and the form generates the monthly forgiveness table for you. You then set the termination conditions, choosing whether repayment survives a resignation only or also a discharge for misconduct, with the misconduct standard pulled from the selected state. The last screens cover the deduction position, the notice given before signature and the signature blocks. Download in Word to route the draft through counsel, or in PDF to circulate for signature. The rest of the onboarding set sits in the US employment templates library.

The most expensive error is charging back training the employer was obliged to provide. Compliance modules, safety certifications required for the role and standard orientation are the employer's cost under wage and hour law, and an agreement that sweeps them in hands the employee a wage claim on top of a defence. Close behind is the cliff schedule, where the full amount stays owing until the last day of the retention period and then vanishes. Courts read that as a penalty. Inflating the figure with recruitment costs or an internal hourly rate for the trainer produces the same result.

Two procedural mistakes account for the rest. Presenting the agreement on the first day of work, buried in the onboarding stack, undermines the consideration argument and breaches the separate document requirement several states now impose. Deducting the balance from a final paycheck feels efficient but is unlawful in most jurisdictions without express written authorization, and unlawful everywhere to the extent it drops the worker below the minimum wage and overtime floor. Recover through a demand letter and a civil claim, not through payroll.