Since our last blog post, some key developments have arisen in the world of non-compete agreements. Specifically, this month, New Jersey legislators introduced a bill to the New Jersey State Assembly aimed at limiting non-compete agreements. While the bill’s fate is anything but certain, it is worth mentioning the bill’s key features—as they serve as good examples of trends cropping up across the country.
Similar to the language used by the Biden administration, as mentioned in our previous blog post, the language of the New Jersey bill generally rebukes the use of non-competes in the workplace. The bill positions non-competes as impediments to the development of business and asserts that they inherently “driv[e] skilled workers to other jurisdictions.
While the bill lists, among other things, the “typical” non-compete requirements (e.g., a 12-month enforcement period and that the agreements must be reasonable in scope and geographic territory), the bill also notably requires a longer waiting period before non-compete agreements can become effective. Specifically, employers must give new employees written notice of the restrictions either 30 days before their start date or before a formal offer letter is sent—whichever is earlier. If the agreement is entered into after commencement of employment, the employer must provide at least 30 business days before it becomes effective. This proposed period is significantly longer than states that have comparable provisions or are currently considering similar review periods (e.g., Illinois requires a 14-day period while Connecticut recently proposed a 10-day period).
A not-so-surprising provision of the bill includes restrictions on who non-compete agreements can apply to. Following the trend of ten other states—namely, Illinois, Maryland, Maine, Massachusetts, Oregon, Nevada, New Hampshire, Rhode Island, Virginia, and Washington—New Jersey is now similarly gearing up to ban non-compete agreements for low-wage workers, which it defines as “an employee whose average weekly earnings…are less than the Statewide average weekly remuneration[.]” The bill provides a calculation for employers to utilize when making this determination, including a period (12 months immediately preceding termination) as to when this calculation should be made.
The New Jersey bill also addresses choice of law clauses, which it scrutinizes with a critical eye. While it is common practice among employers to choose a state where the law is more employer-friendly, the New Jersey bill purports to eliminate this tactic by stating that the agreement cannot contain such a clause if it “would have the effect of avoiding the requirements of this section.”
Lastly, the bill contains a “garden pay” provision, which states that during the post-employment termination period, and while the non-compete is in effect, the employer must pay the employee an amount equal to 100% of the pay which the employee would have been entitled, plus fringe benefits. This provision, coupled with a liquidated damage provision of up to $10,000, is extremely employee friendly and is not typically found in other state statutes. While D.C. remains the state with the most comprehensive non-compete laws—a total ban—this New Jersey bill, if enacted, will surely join the list of the most restrictive non-compete laws in the country.
While there is no need to become alarmed by these changes, especially since the law would not apply retroactively, if enacted at all, it is important to note that changes may be coming to New Jersey—as they have with a handful of other states. For now, employers should continue to review their agreements for compliance with their state’s specific laws and make sure potential, future agreements will pass muster. HR Legalist will continue to track developments in state and federal non-compete law.
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