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Restricting Restrictive Covenants: New Legislation Poised to Narrow the Scope of Permissible Restrictions in New Jersey Employment Contracts

By: Cristina N. Hyde, JD

Earlier this year, on May 2, 2022, several New Jersey assemblymen proposed new legislation restricting the scope of non-compete agreements, restrictive covenants, and no-poach agreements in employment contracts.  Recognizing that these restrictions often prohibit competition, impede the development of business, and drive skilled workers to other jurisdictions, Assembly Bill No. 3715 is intended to negate these chilling effects while balancing an employers’ legitimate business interests.

Currently, New Jersey courts will enforce a restrictive covenant so long as it (1) protects the legitimate interests of the employer, (2) does not impose undue hardship on the employee, and (3) is not adverse to public interest. If passed, A3715 would codify the current precedent, with some restrictions.

Highlights of the new legislation include:

  • Notice requirements to ensure both that prospective employees are fully aware of the terms of their contracts that the new legislation is prominently posted in the workplace.
  • The requirement that a restrictive covenant may not be broader than necessary to protect the legitimate business interests of the employer.
  • The requirement that the duration of a restrictive covenant be limited to 12 months following the date of separation.
  • The requirement that the former employee receive full pay and benefits for the duration of the non-compete period unless they are in breach of contract or have been terminated for misconduct.
  • The requirement that the geographical reach of the non-compete agreement be reasonable and does not prohibit an employee from seeking employment in other states.
  • The requirement that the restrictive covenant be reasonable as it relates to the scope of activities prohibited.
  • The mandate that an agreement not to compete does not prohibit an employee from providing a service to a former employer’s client so long as the employee did not directly solicit the client.
  • An outright ban on non-compete agreements for certain categories of workers including undergraduate and graduate students undertaking internships, and low-wage workers.

While still in its infancy, if signed into law, A3715 will align New Jersey with eleven other states that are currently restricting non-compete agreements.  As such, employers should be aware of the possible implementation of its limitations.

If you would like help reviewing your small businesses’ post-employment restrictive covenants and non-compete agreements, contact us.  Campanella Law Office is always ready to help.

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