Eight States with 24 Noncompete Bills: New Jersey

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If you’ve been following along with this series of posts, you know that there have been 66 noncompete bills pending in 25 states this year1 — plus three pending federal noncompete bills, D.C.’s new law to ban most noncompetes, and a bill to rein in D.C’s new law before it becomes effective (which is anticipated to be in April 2022).

Thirty-nine bills (in 17 states2) have died and three other bills (one in each of Oregon, Illinois, and Nevada) have passed — leaving the current tally at 24 noncompete bills still pending in eight states: Illinois, Massachusetts, New Jersey, New York, Ohio, Pennsylvania, South Carolina, and Vermont — plus DC.

In this series, we are providing details on all pending bills — and we will be updating our Changing Trade Secrets | Noncompete Laws page accordingly. Note that the summaries are (sort-of) color coded for the nature of the bill (ban, modification or establishment of standards, reversal of prior changes) and the groups for whom it creates exceptions or specific limitations (medical, low-wage workers, others).

Today’s update: New Jersey.

New Jersey has the following four pending bills, all introduced in 2020 (i.e., the beginning of its current legislative session):

  • S.899 (An Act limiting certain provisions in restrictive covenants and supplementing Title 34 of the Revised Statutes): Introduced on January 27, 2020, the bill begins by “declaring” a handful of findings as the reason for the bill. However, some of those declarations are likely incorrect, overstated, or at least premature insofar as they are presumably based on preliminary, inconclusive, and nuanced research results that should not form the basis for legislation, especially without any appreciation for the unintended consequences (which have not been studied). The bill also seems to (1) conflate noncompetes with the more general term, “restrictive covenants,” which includes more than just noncompetes, and (2) use “agreement” somewhat indiscriminately and interchangeably with noncompete, creating some potentially significant issues. Nevertheless, if enacted, the bill would substantially revise existing noncompete law in New Jersey, in many ways following approaches developed in Massachusetts’ 2018 legislation, but often going well beyond that law, effectively rendering most of the permitted noncompetes barely useful and likely prohibitively expensive. Specifically, in addition to defining certain terms (such as “low-wage employee” and “pay”), the bill would primarily:
    • require employers to “disclose the terms of the agreement in writing to the prospective employee by the earlier of a formal offer of employment, or 30 business days before the commencement of the employee’s employment or, if the agreement is entered into after commencement of employment, . . . provide the agreement at least 30 business days before the agreement is to be effective”;
    • require that the agreement be signed by the employer;
    • require that the agreement “expressly state that the employee has the right to consult with counsel prior to signing”;
    • codify the standard that “[t]he agreement shall not be broader than necessary to protect the legitimate business interests of the employer, including the employer’s trade secrets or other confidential information that would not otherwise qualify as a trade secret, including sales information, business strategies and plans, customer information, and price information” and certain other common law principles;
    • establish a presumption of necessity “where the legitimate business interest cannot be adequately protected through an alternative agreement, including but not limited to: an agreement not to solicit or hire employees of the employer; an agreement not to solicit or transact business with customers, clients, referral sources, or vendors of the employer; or a nondisclosure or confidentiality agreement”;
    • place a one-year limit on the permissible duration of a noncompete;
    • circumscribe the geographic scope to “the geographic areas in which the employee provided services or had a material presence or influence during the two years preceding the date of termination of employment” (this is not a presumption of reasonableness, as it in Massachusetts, but rather an actual limitation), and further expressly prohibit the geographic reach to prevent “an employee from seeking employment in other states”;
    • limit the scope of restrictions “to only the specific types of services provided by the employee at any time during the last two years of employment” (this is not a presumption of reasonableness, as it in Massachusetts, but rather an actual limitation);
    • prohibit the use of choice of law clauses “that would have the effect of avoiding the requirements” of the statute for employees residing or working in the state for at least 30 days immediately preceding the end of the employment relationship;
    • prohibit waivers of the protections in the statute, common law, or otherwise;
    • ban the use of no-service/no-accept clauses (one might ask why, given that these restrictions are narrower than noncompetes, and are often used in lieu of noncompetes);
    • ban noncompetes for (1) “nonexempt” employees under the Fair Labor Standards Act of 1938 (29 U.S.C. § 201 et seq., (2) most students, (3) apprentices under government apprenticeship programs, (4) seasonal or temporary employees, (5) employees who have been “terminated without a determination of misconduct or laid off by action of the employer,” (6) independent contractors, (7) employees under the age of 18, (8) low-wage employees (i.e., employees who earn less than the average New Jersey weekly wage, currently $1,291.42 (about $67,154 annually)), and (9) employees “whose period of service to an employer is less than one year”;
    • require employers to provide notice of their “intent to enforce the noncompete” no later than 10 days after the termination of an employment relationship (otherwise the agreement becomes void unless the employee engaged in misconduct);
    • require the payment of “100 percent of the pay which the employee would have been entitled for work that would have been performed during the period prescribed under this section” and that the employer “continue[] to make whatever benefit contributions would be required in order to maintain the fringe benefits to which the employee would have been entitled for work that would have been performed during the period prescribed under this section” (absent employee breach or misconduct within its defined meaning in the statute);
    • authorize employees to challenge an agreement that violates the statute and the court to award damages (including liquidated damages up to $10,000) and attorney’s fees to the employee; and
    • require employers to post a copy of the statute or a summary (approved by the state) “in a prominent place in the work area.”

The bill is pending before the Senate Labor Committee.

The bill was reported out of Assembly Committee, 2nd Reading with 6 yeas and 3 nays, on February 24, 2021.

The bill was reported out of Assembly Committee, 2nd Reading with 11 yeas and 2 nays, on February 24, 2021.

The bill is pending before the Senate Health, Human Services and Senior Citizens Committee.

 

Next up: Ohio

 

And, remember, if you want to see a summary of the current noncompete law in any state (and D.C.), please refer to our 50-state noncompete chart, which is updated on a continual basis, as the laws change.

*A huge thank you to Erika Hahn for all of her extraordinary help in tracking and monitoring all of the bills. Photo credit BruceEmmerling. 

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[1] The 25 states are: Arkansas, Connecticut, Georgia, Illinois, Iowa, Kentucky, Louisiana, Massachusetts, Minnesota, Mississippi, Missouri, Nevada, New Hampshire, New Jersey, New York, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, Texas, Utah, Vermont, Virginia, and West Virginia.

[2] The 17 states are: Arkansas, Connecticut, Georgia, Iowa, Kentucky, Louisiana, Minnesota, Mississippi, Missouri, Nevada, New Hampshire, Oregon, Rhode Island, Texas, Utah, Virginia, and West Virginia. (I will do a future post discussing the bills that died.)

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