New Jersey Introduces Legislation Cutting Away at Restrictive Covenants
Posted on Aug 18, 2022 on Uncategorized by
On May 2, 2022, New Jersey introduced a bill restricting the enforcement of non-compete and non-solicitation agreements. The bill, Bill A3715, is one of the most restrictive bills introduced anywhere in the United States.
The proposed law creates sweeping changes. The bill bans restrictive covenants for a variety of types of workers. Additionally, it requires employers to pay employee’s wages and benefits during the duration of the restricted period. The bill includes many other restrictions, including:
Bans against restrictions covering certain categories of workers
The proposed law makes restrictive covenants categorically unenforceable against:
- Non-exempt employees;
- Seasonal or temporary workers;
- Employees terminated without a determination of misconduct or who are laid off;
- Independent contractors;
- Employees under the age of 18;
- Employees whose weekly average earnings during the year prior to termination are less than the statewide average weekly remuneration; and
- Employees who have worked for the employer for under a year.
Restricts use and scope
The Bill adds strict requirements to the use and scope of restrictive covenants. Some of these restrictions are:
- Maximum duration of 12-months;
- Scope must be limited to specific territory and specific services of employees;
- Cannot ban work outside of New Jersey; and
- Cannot prohibit employees from accepting business from the former employer’s customers.
Mandates “garden leave” payments
The proposed bill also requires employers “pay the employee an amount equal to 100 percent of the pay which the employee would have been entitled for work that would have been performed during the period prescribed” in addition to benefits. The Bill makes an exception for employees fired for misconduct.
Strict Rules for Statutory Compliance
The proposed rule restricts a court’s ability to reform restrictive covenants. In effect, this will make non-compliant restrictive covenants completely void. This makes the drafting of your business’s restrictive covenant extremely important.
As restrictive covenants are under scrutiny across the country, it is important for employers in New Jersey and beyond to ensure that they are staying up to date with legislation surrounding restrictive covenants. Restrictive covenants can be key for protecting your business interest, and compliance is the only way to ensure their enforceability.
Brody and Associates regularly advises management on complying with the latest local, state and federal employment laws. If we can be of assistance in this area, please contact us at firstname.lastname@example.org or 203.454.0560