New Jersey Bill Would Limit Enforceability of Noncompete Clauses and Other Restrictive Covenants in Employment Contracts

signatureBusinesses have an obligation to protect their assets and interests, but not in ways that damage their employees. New Jersey employers can protect their interests with covenants not to compete, also known as noncompete clauses, which limit employees’ ability to work for, or become, a competitor after their employment ends. A bill pending in the New Jersey Legislature would significantly restrict the enforceability of noncompete clauses. An Assembly committee reported favorably on A1769 in May 2018, while the Senate counterpart, S635, is still awaiting a committee hearing.

In order for a noncompete clause to be enforceable under current New Jersey employment law, it must be reasonably limited in both time and geographic scope. A noncompete clause that purported to prohibit a former employee from ever working for a competing company anywhere in New Jersey would be unenforceable on its face because it is not even close to being reasonably limited to the protection of the employer’s interests at the moment the employee ceases to be employed. If the noncompete clause only restricted employment with a competitor within, for example, five miles of the employer’s location for six months, it would probably be enforceable. Even then, however, noncompete clauses often require workers to relocate or change fields solely to avoid liability to their former employer.

A1769 and S635 state that noncompete clauses “driv[e] skilled workers to other jurisdictions” and “requir[e] businesses to solicit skilled workers from out-of-State.” The Assembly Labor Committee made some changes to the bill, but most provisions remain the same as in S635. The bill establishes a 10-part test that a noncompete clause would have to meet in order to be enforceable:

1. If the noncompete clause is part of an initial employment contract, the employer must disclose its terms to the employee in writing.
2. Noncompete clauses are limited to protection of “the legitimate business interests of the employer.”
3. The duration cannot exceed 12 months.
4. The “geographical reach” must be reasonable, cannot extend outside the state, and can only cover areas where the employee actually worked, or “had a material presence or influence,” during a two-year period before termination.
5. Prohibited activities can only include “the specific types of services provided by the employee” during that two-year period.
6. The employer cannot retaliate against an employee for opposing the “validity or enforceability” of a noncompete clause.
7. “Choice of law” provisions cannot avoid the bill’s requirements.
8. Employees’ rights under this bill are not subject to waiver.
9. Former employees may provide services to a customer of the employer if the former employee did not “initiate or solicit” them.
10. The noncompete clause cannot be “unduly burdensome” to the employee, nor may it harm the public or go against public policy.

The bill further states that noncompete clauses would not be enforceable under any circumstances for certain groups, including independent contractors, seasonal workers, people employed for less than one year, and employees who are considered “nonexempt” under the federal Fair Labor Standards Act. See 29 U.S.C. § 213. Employers would have to notify former employees that they intend to enforce a noncompete clause within 10 days of termination. Liquidated damages in a civil lawsuit by a former employee could be as much as $10,000.

If you are involved in a dispute regarding a noncompete agreement in New Jersey or New York, the knowledgeable and experienced employment attorneys at the Resnick Law Group are available to help you. Contact us today online, at 973-781-1204, or at 1.888.863.3423 to schedule a confidential consultation with a member of our team.

More Blog Posts:

New Jersey Judge Rules for Former Employee in Dispute Over Noncompete Clause, The New Jersey Employment Law Firm Blog, April 26, 2018

New Jersey Antitrust Class Action Accuses Employers of “Anti-Poaching” Agreements, The New Jersey Employment Law Firm Blog, May 2, 2017

White House Calls on States to Limit the Scope of Non-Compete Agreements, The New Jersey Employment Law Firm Blog, December 23, 2016

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