For one of the most employee-friendly states in the country, the current state of play in New Jersey for restrictive covenant agreements like non-competes and non-solicits is employer-friendly. Although your mileage may vary by judge, most will enforce reasonable contracts of up to two years with a geographical footprint that coincides with where the company does business. Continued employment is sufficient consideration, and if the agreement is too broad, the judge can reform it.
Those days may be ending soon.
At the beginning of this month, the New Jersey Assembly introduced a bill that limits specific provisions in restrictive covenants and limits the enforceability of restrictive covenants.
The new legislation wouldn’t kill restrictive covenants altogether. An employer would still be able to require or request that an employee enter into a restrictive covenant as a condition of employment or in connection with a severance agreement. However, employers would need to jump through a few hoops.
Ten of them, ranging from the timing of when the employer must provide a copy to the employee, to length (no more than one year), to geography (only NJ), to choice of law, to the specific types of customers that an employee can’t contact, and much more.
Then, there are the nine situations in which it would be unlawful for an employer to attempt to enforce a restrictive covenant, including employees with less than one year of service, independent contractors, an employee who has been terminated without a determination of misconduct or laid off by the action of the employer, or any FLSA non-exempt worker.
Did I mention that the employer must pay the employee 100 percent of their pay and benefits during the post-employment restrictive covenant period? That’s in the new legislation too.
And, but of course, employees can bring a civil action against any employer that violates the law, should it pass.
If the bill becomes law, it won’t apply to any existing restrictive covenant agreements, for what it’s worth.
So, if you’re a New Jersey business that just loves restrictive covenants — not everyone does — you may want to hurry up and get ’em signed if you’re considering using one for any new or current employee. In the meantime, I’ll keep you updated on the status of this legislation.