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New Bill Introduced to Restrict the Use of Non-Competes or Post-Employment Restrictive Covenants
March 23, 2021
New Bill Introduced to Restrict the Use of Non-Competes or Post-Employment Restrictive Covenants

As discussed in a prior Parker McCay blog post, over the past few years, the New Jersey Senate has introduced bills attempting to erode the protections afforded to businesses by post-employment restrictive covenants.

In 2017 and 2018, the New Jersey Senate introduced SB 3518 and SB 2872, respectively, which attempted to limit the enforceability of restrictive covenants. These proposed bills did not become law.  However, earlier this year, the New Jersey Senate once again introduced legislation (SB 899, a bill similar to SB 3518 and SB 2872) that could substantially affect a business' ability to protect its confidential information and trade secrets. As proposed, the bill attempts to limit the enforceability of broad post-employment restrictive covenants that are entered into following the enactment of the proposed law.

SB 899 eliminates the use of non-compete or post-employment restrictive covenants for nine (9) categories of employees, including nonexempt, seasonal, low-wage employees, independent contractors, and those whose employment is less than one year. However, unlike SB 3518 and SB 2872, SB 899 would prohibit enforcing restrictive covenants against an employee that has been terminated without a determination of misconduct, a departure from current law.

Furthermore, for a restrictive covenant to be enforced against other employees, the proposed legislation would severely limit its contents by requiring the restrictive covenant to satisfy a 10-factor test in order to be enforceable. Among other things, the breadth, scope, length, geographical reach, and choice of law provisions of the agreement would be restricted under the proposed legislation. The limitations imposed by the proposed legislation SB 899 would have a chilling effect on the ability to protect a company’s confidential information and trade secrets.

SB 899 is currently pending before the New Jersey Labor Senate Committee, Parker McCay will continue to monitor the status of this pending legislation and provide updates on new developments. In the interim, please contact the attorneys in Parker McCay’s Corporate and Employment and Labor departments at any time for guidance on the use of restrictive covenants.

The content of this post is for informational purposes only and should not be construed as legal advice or legal opinion. You should consult a lawyer concerning your specific situation and any specific legal question you may have.

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