New Jersey may be poised to become the latest state to adopt strict procedural and substantive requirements on post-employment non-compete agreements. Assembly Bill No. 1650, if passed, would substantially overhaul New Jersey’s laws regarding post-employment non-compete agreements by, among other things, limiting the types of employees against whom a non-compete agreement is enforceable, as well as limiting the time, scope and geographic region of a non-compete agreement. Assembly Bill No. 1650 still permits post-employment non-compete agreements so long as the agreements are “not broader than necessary to protect the legitimate business interests of the employer.” The bill suggests that employers should first determine if an alternative agreement, such as a non-solicitation agreement with respect to hiring the employer’s employees or transacting business with the employer’s customers, clients, referral sources or vendors, would instead be sufficient to protect the employer’s legitimate business interests.
If passed in its current form, the bill would exclude ten categories of individuals from being subject to non-compete agreements, including employees classified as nonexempt under the Fair Labor Standards Act of 1938, employees that have been terminated without a determination of misconduct or laid off by action of the employer, and employees whose period of service to an employer is less than one year. Notably, the bill limits the length of non-compete agreements to a one-year period and requires that geographic restrictions be “reasonable” 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 shall not prohibit an employee from seeking employment in other states.” The bill also requires that all non-compete agreements have a garden leave period during which employers must continue to pay an employee their full salary and make benefit contributions on the employee’s behalf during the period of time covered by the non-compete agreement.
Additionally, the bill requires specific notices be provided to prospective and current employees within specified time frames prior to entering into a non-compete agreement. Employers would also be required to notify employees in writing no later than 10 days after the termination of the employment relationship of its intent to enforce the agreement. The failure to provide this notice would automatically void the agreement. However, this notice provision would not apply if the employee has been terminated for misconduct.
If the bill passes in its current form, employers would not be able to use a choice of law provision to avoid the bill’s requirements. Choice of law provisions would be forbidden if the employee is either a resident of or employed in New Jersey for at least thirty days immediately preceding their termination of employment and at the time their employment is terminated. Employers would also be required to post a copy of the summary of the bill’s requirements in a “prominent place in the work area.”
The bill also provides an employee subject to a non-compete agreement the right to commence a civil action against the employer or another person for violating the bill within two years of the later of: (1) when the prohibited agreement was signed; (2) when the employee learns of the prohibited agreement; (3) when the employment relationship is terminated; or (4) when the employer takes steps to enforce the agreement. Courts would have jurisdiction to void the agreement and award any additional appropriate relief.
On February 24, 2021, A1650 received enough votes to clear the Assembly Labor Committee. The bill is currently awaiting a vote before the General Assembly. If enacted, the legislation would take effect immediately, but would not apply retroactively to any agreement in effect on or before the date of enactment.
