New legislation has been winding its way through the Trenton state house which, if passed and signed by Governor Murphy, would severely limit New Jersey employers’ ability to obtain non-compete agreements from their employees.
This would continue a recent trend among several states who have passed similar laws aimed at impeding the ability for companies to restrict their employees after their departure. Although the version currently introduced in the legislature is subject to change, it is important for both employers and employees alike to know what is being considered in order to prepare for the implications if and when this law passes.
Companies would have to pay restricted employees.
One of the most dramatic provisions in the proposed bill is that employers will be required to pay a terminated individual as if they were still employed as a pre-condition to being able to enforce a non-compete provision. This would include all of their salary and all of their fringe benefits, including “any vacation leave, sick leave, medical insurance plan, disability insurance plan, life insurance plan, pension benefit plan, or any other benefit of economic value . . .” Essentially codifying a sort of “garden leave” for restricted employees, this will require companies to think carefully about whether the benefit of restrictions are worth the cost of having to pay the employee.
A new 12 month maximum for non-competes, and some restrictions that have been previously enforced by courts, would now be codified.
The proposed bill would take the interpretation of certain restrictions out of the hands of judges and codify them. For instance, non-competes of over 12 months following termination would be unlawful. This is important as New Jersey courts have routinely upheld restrictions of up to two years as reasonable. Further, non-competes would only prohibit an employee from working in a geographic area where the employee had a material presence or influence during the two years prior to termination. In addition, restrictions on providing service to a customer or client of the employer would be prohibited as long as the employee did not initiate or solicit such customer or client. Agreements also would not be able to prevent an employee from working outside New Jersey after termination.
There would be new obligations to “notice” employees of restrictions, and new posting requirements.
Employers would also have to provide employees with specific notices both at the beginning and at the end of employment.
On the one hand, when hiring, the employer would have to disclose the terms of a non-compete agreement in writing to a candidate by the earlier of either formally offering employment, or thirty business days prior to the commencement of employment. Such notice would also have to expressly state that the employee has the right to consult with counsel prior to signing.
On the other hand, when terminating, the employer would have to notify the employee in writing of its intent to enforce the non-compete agreement within 10 days of termination otherwise the agreement is to be considered void and unenforceable. The only exception to this post-termination notice requirement would be if the employee is terminated for misconduct.
Moreover, the bill would require employers to post a copy of the law in a prominent place. If this law is passed, we expect the NJ DOL to issue authorized posters for employers to use.
Specific categories of employees would not be able to enter into non-competes.
The proposed bill would make non-competes unenforceable against nine categories of employees. One important development is that non-competes would essentially only be enforceable against employees who leave the company voluntarily, or are terminated for misconduct. It would not be enforceable against employees simply laid off or fired without a determination of misconduct.
To illustrate more, the full list of employees who would not be able to have non-competes enforced against them are:
Employees classified as non-exempt under the federal Fair Labor Standards Act,
Undergraduate or graduate student interns,
Apprentices participating in programs registered by the Office of Apprenticeship of the U.S. Department of Labor,
Seasonal or temporary employees,
Employees laid off by an employer, or terminated for a reason other than misconduct,
Minors, defined as employees under the age of 18,
Employees with less than one year with the employer, and
Low-wage employees, defined as employees with average weekly earnings less than the New Jersey statewide weekly average as determined by the Commissioner of Labor and Workforce Development.
Parties would need to use New Jersey law in most situations.
The bill would also limit the ability of employers to set a choice of law in their non-compete agreements. If an employee is a resident of New Jersey for at least 30 days prior to termination – likely the vast majority of folks signing non-competes with New Jersey based companies – New Jersey law would have to apply.
Prior agreements would not be affected.
The current version of the bill states that, if passed, it would go into effect immediately but would not apply to any agreements already in place at the time of enactment. If this holds, it provides certainty to employers that their current agreements would not be affected and even gives employers the ability to enter into agreements prior to passage.
We are continuing to monitor the status of the pending legislation and the final version of the bill if it ends up becoming law. If you have any questions, or want an individualized review of your situation in regard to you or your company’s non-competes, please contact Mattiace Tetro LLC.
 https://www.njleg.state.nj.us/bill-search/2022/A3715/bill-text?f=A4000&n=3715_I1  New Jersey is poised to follow the lead of jurisdictions such as Maine, Massachusetts, Maryland, New Hampshire, Rhode Island, Virginia, Washington, Oregon, Illinois, Colorado, and Washington D.C. in codifying restrictions t
o non-compete agreements. Outright bans on non-competes exist in California, North Dakota, and Oklahoma.
 The New Jersey DOL’s last calculation of the statewide average weekly wage was $1,419.52 in 2019. See https://www.nj.gov/labor/lwdhome/press/2021/20211222_benefitrateincrease.shtml.