On May 10, 2018, the New Jersey Assembly Labor Committee advanced a bill (Assembly Bill A1769) that would provide for certain limitations on restrictive covenant agreements (in particular, non-compete agreements) between employers and employees. If enacted, employers in the State of New Jersey would certainly have a more difficult time attempting to enforce restrictive covenant agreements given the onerous nature of the proposed legislation’s requirements; and employees who sign restrictive covenant agreements in compliance with the proposed legislation would have less post-employment restrictions imposed on them.
Under the proposed legislation, a restrictive covenant is enforceable if it meets the following requirements: if the agreement is entered into at the commencement of employment, the employer must disclose the terms in writing to the prospective employee by the earlier of a formal offer of employment or 30 business days prior to the commencement of employment; if the agreement is entered into after the commencement of employment, the employer must provide the agreement to the employee at least 30 business days before the agreement is effective; the agreement must be signed by both the employer and the employee and state that the employee has the right to consult with counsel; the agreement shall not be broader than necessary to protect the legitimate business interests of the employer, including the employer’s trade secrets or other confidential information, such as sales information, business strategies and plans, and customer or price information; the agreement may not restrict the employee from engaging in competitive activity for more than 12 months; the agreement must be reasonable in geographic scope, must be limited to the area where the employee provided services or had a material presence in the two years prior to the employee’s termination, and may not restrict the employee from seeking employment in other states; the agreement shall be reasonable in the scope of the proscribed activities in relation to the interests protected and limited to the specific types of services provided by the employee during the employee’s last two years of employment; the agreement shall not penalize an employee for defending or challenging the enforceability of the agreement; the agreement shall not contain a choice of law provision that would have the effect of avoiding the requirements of the legislation; the agreement shall not waive the employee’s substantive, procedural or remedial rights provided under the legislation or any other law, act, or regulation; the agreement shall not restrict the employee from providing a service to a customer or client of the employer if the employee does not initiate or solicit the customer or client; and the agreement shall not be unduly burdensome on the employee, injurious to the public or inconsistent with public policy.
In addition, other highlights of the proposed legislation are as follows: the bill would not be enforceable against certain classes of employees, such as non-exempt employees under the Fair Labor Standards Act, independent contractors, and employees whose service was less than one year; an employer who seeks to enforce the restrictive covenant agreement would be required to notify the employee in writing within ten days after the employee’s termination of the employer’s intent to enforce the agreement; employers would be required to post a copy of the law in a prominent place in the work area; unless the employee is terminated for misconduct, an employer who seeks enforcement of the agreement would be required to pay the employee 100 percent of the pay to which the employee would have been entitled as well as whatever benefit contributions would be required in order to maintain fringe benefits for the employee; and the proposed legislation allows employees to bring civil action against the employer for violation of the law, including seeking injunctive relief, liquidated damages, compensatory damages and reasonable attorneys’ fees and costs.
If enacted, the legislation would go into effect immediately. However, the legislation would not apply to agreements in effect prior to the enactment of the legislation. Nonetheless, it would be prudent for employers to review their restrictive covenant agreements currently in effect and to monitor this legislation; and likewise, it would be prudent for employees to seek legal counseling prior to signing a restrictive covenant agreement.