Why Employers Need to Review Their Tuition Reimbursement Plans in 2026

Employers offering or considering tuition reimbursement plans are facing significant regulatory changes in both California and New York.

Tuition reimbursement plans are offered by employers as a fringe benefit that reimburses employees who want to continue their education in a degree program or receive certain certifications.

Many employers impose certain conditions for receiving reimbursement, including staying on the job and requiring employees to repay the employer if they terminate employment within a specified period of time. Recent changes to state laws governing employer recoupment rights and repayment agreements require review of the administration and documentation of employer’s tuition reimbursement plans. Like many workforce-facing benefits, tuition reimbursement is no longer just an HR perk, it is a compliance issue. While California and New York requirements are very similar, there are important differences.

California’s Restrictions on Repayment Agreements

As reported here, effective January 1, 2026, California law significantly restricts employers’ ability to include claw-back or repayment provisions in employee agreements, including provisions tied to tuition reimbursement.

Compliant tuition reimbursement programs should include the following conditions:

• Repayment provisions must be in a written agreement separate from the employment contract.
• Covered education must result in a transferable credential (degree, license, certificate, etc.).
• Repayment must be limited to the employer’s actual cost and be prorated over time (e.g., if the program requires 2 years of retention and an employee terminates after 12 months, the employer can only seek reimbursement of 50% of the cost).
• No acceleration of repayment upon resignation or termination for misconduct (e.g., using the example above, the employee has 12 months to repay the repayment obligation).
• No repayment obligation if the employee is terminated without misconduct.

New York’s Trapped at Work Act Developments

New York’s Trapped at Work Act similarly restricts the use of employment promissory notes, requiring repayment of training costs. A recently enacted amendment to the law, explained here, delays enforcement and created a narrow exception allowing for tuition repayment agreements, provided strict statutory conditions are met. The terms under the amended law are similar to the California law, adding some ease for employers operating in both states.

Those conditions include:

• Repayment provisions must be in a written agreement separate from the employment contract.
• Covered education must result in a transferable credential (degree, license, certificate, etc.).
• Repayment must be clearly disclosed in the agreement.
• Repayment must be limited to the employer’s actual out of pocket cost and be prorated over time (e.g., if the program requires 2 years of retention and an employee terminates after 12 months, the employer can only seek reimbursement of 50% of the cost).
• No acceleration of repayment upon resignation or termination for misconduct (e.g., using the example above, the employee has 12 months to repay the repayment obligation).
• No repayment obligation if the employee is terminated without misconduct.

Even where state law permits repayment agreements, drafting errors can render provisions unenforceable and expose employers to statutory damages and attorneys’ fees. The New York amendment is effective no earlier than December 19, 2026, and no later than February 13, 2027, giving employers some time to ensure their programs are in compliance with the law.

The Bottom Line

Tuition reimbursement plans are no longer simple retention tools. With tightening state restrictions employers should use this opportunity to review and revise their tuition reimbursement plan documents, especially if their plans include some type of repayment provision.

For employers with multi-state operations, these technical requirements demand coordinated review and consideration as to how to approach compliance in a way that makes sense for the business. Do you wish to make any required changes uniform to all program participants for ease of administration? Do you wish to add state specific addendum?

EBG is here to help.

Epstein Becker Green Staff Attorney Elizabeth A. Ledkovsky contributed to this post.