Will Non-Compete Agreements Be Banned in New Jersey?
Under New Jersey law, non-compete agreements are valid and enforceable if they are “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).
However, it is questionable whether non-compete agreements will continue to be enforceable and viable in the State of New Jersey.
What is Happening With Non-Compete Agreements?
In January 2023, the Federal Trade Commission (“FTC”) proposed a new rule that would essentially nullify the use of non-compete agreements in the workplace. Indeed, the proposal would make it an “unfair method of competition for an employer to enter into or attempt to enter into a non-compete clause with a worker; maintain with a worker a non-compete clause; or represent to a worker that the worker is subject to an enforceable non-compete clause.”
Similarly, in New Jersey, there is pending legislation (Bill No. A3715/S1410) that would put significant restrictions on the use of non-compete agreements in the State of New Jersey. Among the more significant restrictions are that the non-compete obligations would not be able to exceed twelve (12) months in duration; the agreement would not limit the separated employee from providing services for a customer if the customer initiated the solicitation; the non-compete obligations would have to be communicated to the employee in a formal offer letter or thirty (30) days after commencement of employment (whichever is earlier); and non-compete obligations would be unenforceable against certain types of employees (such as non-exempt employees under the Fair Labor Standards Act or seasonal or temporary employees).
The Future of Non-Compete Agreements in New Jersey
The future of non-compete agreements in the State of New Jersey is murky. If the FTC proposal is adopted, non-compete agreements may be void. Regardless, if enacted the pending New Jersey legislation noted above would significantly limit the viability of non-compete agreements in the State.
What Does This Mean For Your Business?
In light of the above, businesses in the State of New Jersey should brace themselves for the possibility that non-compete agreements may be more difficult to enforce. As such, businesses should consult with employment counsel to track the FTC proposal as well as Bill No. A3715/S1410. In addition, businesses should engage employment counsel to review any existing non-compete agreements and update the same to comport with applicable law.
CMS employment attorneys use their extensive experience to help clients navigate through complex issues pertaining to non-compete agreements. If you need assistance with the review, drafting, or updating of non-compete agreements, please contact Curcio Mirzaian Sirot LLC.