A new legislative bill has been introduced that would dramatically change New Jersey state law concerning restrictive covenants and non-compete agreements. Bill A1769 is intended to protect New Jersey employees in securing new employment while also taking into consideration the legitimate protectable interests some employers have in restraining certain employees’ post-termination business activities. Whether a restrictive covenant is enforceable will remain a fact-sensitive inquiry, the bill, if passed, will provide both the employee and the employer with a defined set of rules in determining whether a restrictive covenant can be enforced against a former employee.
A restrictive covenant is an agreement between an employee and their employer that restricts an employee’s ability to secure new employment after the employment has ended. A non-compete clause is a common form of restrictive covenant that seeks to prohibit an employee from working for a competing business for a certain period of time after they are separated from their employment. Another common form of a restrictive covenant is a non-solicitation clause that prohibits a former employee from soliciting business from a former client or customer on behalf of another business. Restrictive covenants are common for sales representatives, insurance and financial professionals, and other high-income professionals.
In introducing this new bill, the New Jersey legislature has declared that these types of post-employment contracts restrict, prohibit, and impede the development of business in New Jersey because they force skilled workers to find work outside of New Jersey while also requiring businesses to solicit skilled workers from other states to perform work in New Jersey. For these reasons, the drafters of this bill state that restrictive covenants discourage innovation and production, impose special hardships on employees and may constitute a restraint on trade and commerce.