On May 10, 2018, the New Jersey Assembly Committee reported favorably on Assembly Bill No. 1769, which, as amended, places certain limitations on restrictive covenant agreements between employers and employees. Under the bill, employers may require that an employee enter into a restrictive covenant agreement as a condition of employment or with regard to severance pay.
Under the bill, the restrictive covenant agreement would be enforceable if it meets the following requirements: (1) if the agreement is entered into in connection with the commencement of employment, the employer must disclose the terms of the agreement in writing to the prospective employee, the agreement must be signed by the employer and the employee, and the agreement must expressly state that the employee has the right to consult with counsel prior to signing; (2) the agreement may not be broader than necessary to protect the legitimate business interests of the employer; (3) the agreement may restrict the employee from engaging in activities competitive with the employer for no more than 12 months following the date of termination of employment; (4) the agreement must be reasonable in geographical reach and limited to the geographic areas in which the employee provided services or had a material presence or influence during the two years preceding the date of termination of employment and may not prohibit the employee from seeking employment in other states; (5) the agreement must be reasonable in the scope of proscribed activities in relation to the interests protected and limited to only the specific types of services provided by the employee at any time during the last two years of employment; (6) agreement must not penalize the employee for defending against or challenging the validity or enforceability of the covenant; (7) the agreement must not contain a choice of law provision that would have the effect of avoiding the requirements of the bill if the employee is a resident of or employed in the State of New Jersey at the time of termination or has been for at least 30 days immediately preceding the employee’s termination of employment; (8) the agreement must not waive an employee’s substantive, procedural and remedial rights provided under the bill, any other act or administrative regulation, or under the common law; (9) the agreement must not restrict an employee from providing service to a customer or client of the employer, if the employee does not initiate or solicit the customer or client; and (10) the agreement may not be unduly burdensome on the employee, injurious to the public, or inconsistent with public policy.
If enacted, this bill will have an impact on the enforceability of restrictive covenants in the State of New Jersey. Indeed, given the bill’s stringent requirements, restrictive covenants agreements would be more difficult to enforce for employers; and employees would likely have increased mobility following the termination of their employment.