New Jersey joins a growing list of states seeking to limit employers’ use of non-compete and non-solicitation agreements, adding to the patchwork of legislation in this area.
The New Jersey State Legislature proposed a bill on May 2, 2022 that would regulate and severely limit an employer’s use of non-compete agreements. Specifically, under A3715, all no-poach agreements would be void and non-compete agreements never enforceable against certain types of workers, including interns, apprentices, independent contractors, minors, low-wage employees, or employees who will be employed for less than one year. Outside of this population, restrictive covenants would only be enforced if the employer first discloses the terms of the agreement in writing 30 days before a prospective employee’s offer or, for current employees, 30 days before the agreement would be effective. Post-employment restrictions could only last for 12-months and employees must provide 10 days’ notice of their intent to enforce a post-employment agreement.
The bill also would codify factors which are typically evaluated by courts in considering the reasonableness of a restrictive covenant, including geographic reach, scope of activities, and only imposing restrictions as necessary to protect the legitimate business interests of the employer. Legitimate business interests explicitly include trade secrets and other confidential business information.
Importantly, the New Jersey bill , as drafted, would not be not retroactive; therefore, if passed, it would not apply to agreements in place before the act is effective.
There are similarities between the proposed New Jersey legislation and legislation enacted in other states. Protection for trade secrets is a typical carveout. Several other states, including Maryland, Oregon, and Virginia similarly outright ban non-compete agreements for “low wage employees,” although each state has a different formula for determining who qualifies as a low wage employee. Oregon likewise finds all post-employment restrictions that exceed 12 months unreasonable. The New Jersey bill is one of the few proposals or laws to specifically call out “no-poach agreements,” a growing area of concern and enforcement, particularly for the federal government.
Although President Biden has, in the past, floated national non-compete legislation and it was included as a directive in last year’s Executive Order on Promoting Competition in the American Economy, this is an area generally regulated by the states. Employers need to keep a watchful eye on the increasing number of restrictions enacted by statute around the United States, and in particular, where they differ. Differences among the states is even more important as employers permit more of their workforce to work remotely. This proposed legislation is a reminder for employers to examine both their non-compete policies and remote work policies.