Proposed Assembly Bill No. 1650 (“A1650”) would significantly take the bite out of the enforceability of non-compete agreements in the state of New Jersey. Under current New Jersey law, a non-compete agreement is enforceable if it is “reasonable in view of all the circumstances of a particular case.” Solari Indus., Inc. v. Malady, 55 N.J. 576 (1970). A non-compete agreement is reasonable when it (1) protects the employer’s legitimate interests; (2) imposes no undue hardship on the employee; and (3) does not injure the public. In all cases, “[t]he validity and enforceability of a covenant against competition must be determined in light of the facts of the case.” Graziano v. Grant, 326 N.J. Super. 328, 343 (App. Div. 1999).

The effects on non-compete agreements

The changes proposed in A1650 would be a game-changer in that they would significantly limit the scope and enforceability of non-compete agreements in the state of New Jersey. Highlights of the proposed legislation include:

• Non-compete agreements would not be enforceable against certain employees including those laid off by the actions of employers and those terminated without a determination of misconduct (i.e., improper, intentional, deliberate behavior).
• An employer would need to notify the employee within 10 days after termination of employment of the employer’s intent to enforce the non-compete agreement. Otherwise, the Agreement would be void.
• The non-compete agreement would not be able to exceed 12 months in duration from the date of separation, whereas under the current state of the law, non-compete agreements that are two years in duration may be viewed as reasonable depending on the facts.
• Significantly, the employer would be required to pay the employee 100% of the pay that the employee would have been entitled for work that would have been performed during the restricted period. The employer must also continue to make whatever benefit contributions would be required to maintain the fringe benefits to which the employee would be entitled during the restricted period.
• The proposed legislation would allow the employee to bring a cause of action against the employer for violations of the statute.

Therefore, if enacted, this legislation would make it onerous for employers in the state of New Jersey to enforce non-compete agreements. Indeed, the enactment of this bill would be an enormous victory for employees in the state of New Jersey, and encourage mobility and advancement opportunities, which would help stimulate the economy during the ongoing COVID-19 pandemic.

If you have any questions about non-compete agreements or A1650, please do not hesitate to contact [nap_names id=”FIRM-NAME-1″].

Frank A. Custode, Esq., is a Partner and Chair of the Employment Practice at [nap_names id=”FIRM-NAME-1″].