NJ Legislature Introduces Bill to Limit Non-Compete Agreements

New Jersey State Assemblymen Peter J. Barnes, III, Joseph V. Egan and Wayne P. Deangelo recently introduced a bill in the New Jersey State Assembly which limits the enforceability of certain post-employment restrictive provisions in employment contracts if the individual who is subject to these restrictions is eligible for unemployment compensation in the state. The bill provides that if an unemployed individual is found to be eligible to receive unemployment compensation benefits, that individual shall not be held bound by any covenant, contract or agreement not to compete, not to disclose or not to solicit.

The rationale behind the bill is to make it easier for a terminated employee to become re-employed. Although it is unclear if the Governor will ultimately sign the bill into law, there appears to be support within the state Assembly and Senate.

The bill, as written, only applies to agreements entered into after the date of the law’s enactment. Therefore, we expect to see more employers requiring that their employees sign these restrictive covenants in the near term in order to avoid potential coverage under the law. Employers may also design these contracts to provide for severance in the form of salary continuation pay so that the former employee may not be deemed eligible for unemployment during the term of the non- compete/non-solicitation.

The issues surrounding most post-termination agreements are complicated. We suggest that both the executives required to sign these agreements, as well as the companies who would like to enforce these agreements, consult a reputable employment law attorney to determine if the contract is reasonable and enforceable.