Many employers invest heavily in employee training and development, and to protect these investments, they often use "stay‑or‑pay" clauses also known as Training Repayment Agreements (TRAPs) which require employees to repay training costs if they leave voluntarily within a specified period. These agreements, while once widely accepted, are now increasingly challenged due to evolving state laws and legal scrutiny.

At their core, stay‑or‑pay agreements must be legally sound: clearly written, supported by reasonable timeframes, and sustained by valid consideration. But merely signing such an agreement doesn’t guarantee enforceability. Courts and regulators scrutinize whether the terms are lawful, fair, and compliant with applicable wage, contract, and public policy standards.

Michigan’s Payment of Wages and Fringe Benefits Act (Public Act 390 of 1978) generally prohibits employers from requiring fees or repayments as a condition of employment. In Sands Appliance Servs. v. Wilson (2000), the Michigan Supreme Court ruled that requiring repayment for mandatory on-the-job tuition violated the Act.

Michigan law does outline narrow exceptions. For law enforcement, repayment agreements tied to voluntary public safety training are permitted but limited: 100% repayment is allowed if the employee leaves within one year of academy completion, dropping to 25% for departures after three years but before four.   

Even where a repayment obligation is otherwise permissible, Michigan law imposes additional safeguards. To recover any amounts owed, employers must obtain the employee’s written authorization through a wage deduction agreement, and any deduction taken from a final paycheck cannot reduce the employee’s pay below minimum wage.

Best Practices for Employers in Michigan

• Limit TRAPs to truly voluntary, optional training programs—not mandatory or part of the employment requirement.
• Clearly articulate terms, including proportional repayment schedules and benefits.
• Exclude mandatory training or wage recovery from these agreements.
• Seek legal review to ensure compliance with wage statutes and contract law.

State Law Developments

• California: Assembly Bill 692, effective January 1, 2026, broadly prohibits clauses requiring employees to repay training, relocation, sign-on bonuses, or similar debts upon voluntary departure. Exceptions for state-approved apprenticeship programs, transferable credentials, and discretionary bonuses are narrowly defined and subject to strict conditions like prorated repayment and separation from employment contracts.
• Colorado: Under HB 24‑1324 (effective August 7, 2024), TRAPs are permitted only if the training is distinct from ordinary job training, costs are reasonable, and repayment decreases over a two‑year period. The Colorado Attorney General can regulate these agreements, and companies face penalties for overreaching terms.

Apart from specific statutes, general wage laws and contract doctrines may invalidate TRAPs that resemble wage clawbacks or impose an unreasonable burden on employees. For instance, federal Fair Labor Standards Act (FLSA) rules can bar repayment for mandatory training time.

As laws continue evolving, employers must balance protecting training investments with ensuring fairness and legal compliance. Thoughtful drafting and proactive legal consultation help reduce enforcement risks and maintain a constructive training environment.