New Jersey may be joining the growing number of states that significantly restrict the use of non-competition agreements in employment. Consider the following…
A “non-compete” agreement can limit an employee’s ability to compete against the employer after the employment ends. Subject to certain parameters, such agreements are enforceable in New Jersey. In recent years, New Jersey has considered limiting the use of “restrictive covenants” in the context of employment. A new bill introduced in the state legislature is getting some attention from lawmakers. The bill defines “restrictive covenant” as “an agreement between an employer and an employee arising out of an existing or anticipated employment relationship, or an agreement between an employer and an employee with respect to severance pay, under which the employee or expected employee agrees not to engage in certain specified activities competitive with the employee’s employer after the employment relationship has ended.” Although not entirely clear, it seems that the definition would restrict “non-compete” agreements, but not necessarily agreements limited to non-solicitation or non-disclosure provisions.
The bill would impose many new regulations on such “restrictive covenants.” Notably, unlike other state law limitations on restrictive covenants, New Jersey’s law would require employers to pay the employee 100 percent of the pay the employee would have been entitled to during restriction period and to continue to make all benefit contributions the employee would have been entitled to during restriction period—unless the employee was terminated for “misconduct.” The “misconduct” standard is new, and is narrower than the “good cause” standard used in prior bills. Thus, the new bill protects employees to an even greater degree than prior versions. If the bill becomes law, it would take effect immediately, but would not apply to agreements in effect on or before the date of enactment.
It seems that New Jersey is moving toward severely limiting restrictive covenants in employment. It would be prudent for employers to familiarize themselves with the pending legislation and plan accordingly. Please feel free to contact me if you have any questions regarding the bill—Assembly Bill 1650.
PLEASE NOTE: This blog is merely for the general interest of the reader. It is not legal advice or opinion and it does not create an attorney-client relationship. Please call me at 973-921-0600 if you’d like to have a free initial telephone consultation or learn more about me or my practice. Thank you.