• Bill in New Jersey Legislature Would Invalidate Restrictive Covenants
  • May 8, 2013
  • Law Firm: Jackson Lewis P.C. - White Plains Office
  • A bill that would “invalidate” non-compete, non-disclosure, and non-solicitation agreements entered into between an employer and its former employee, if the former employee is eligible for unemployment benefits following the cessation of his or her employment, has been introduced in the New Jersey State Assembly. Assembly Bill 3970 would apply only to agreements entered into after the legislation was enacted.

    While the bill apparently attempts to spark job growth in New Jersey, it presents far-reaching implications for New Jersey companies. Of particular importance, A3970 appears to undermine an employer’s right to protect its legitimate business interests. It limits an employer’s ability to prevent by contract a former employee from engaging in unfair competition. Additionally, while the proposal requires that former employees be eligible for unemployment benefits before any restrictive covenant is invalidated, that is a low bar, indeed. Unemployment benefits are granted liberally in New Jersey. That might begin to change if this bill is enacted, at least for claimants who entered into restrictive covenants with their former employers. A3970 could result in more contests and even litigation by employers opposing a former employee’s claim for unemployment benefits so as to avoid triggering the law’s abrogation of agreements critical to the protection of their lawful business interests. Businesses that rely heavily on such restrictive agreements may be reluctant to move into or expand in the Garden State in the face of such a law.

    While it is too early to gauge support for this proposal, it is certain to generate much discussion and opposition in the business community. New Jersey employers are likely to view it as overbroad and indifferent to their legitimate interests in safeguarding confidential information and customer and employee relationships. The proposed law, if enacted, also may create confusion as to whether information presently protected under common law or the New Jersey Trade Secrets Act will continue to be safeguarded if an agreement covering the same information is invalidated.

    A proposal similar to A3970 is under consideration in Maryland.