Sponsored by:
Senator JOSEPH P. CRYAN
District 20 (Union)
Co-Sponsored by:
Senators Johnson and Stack
SYNOPSIS
Limits certain provisions in restrictive covenants and limits enforceability of restrictive covenants.
CURRENT VERSION OF TEXT
As introduced.
An Act limiting certain provisions in restrictive covenants and supplementing Title 34 of the Revised Statutes.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. The Legislature finds and declares that:
a. Post-employment contracts and severance agreements that restrict or prohibit competition, also known as restrictive covenants, covenants not to compete, no-poach agreements, or non-compete agreements, impede the development of business in the State by driving skilled workers to other jurisdictions and by requiring businesses to solicit skilled workers from out-of-State.
b. These contracts and agreements discourage innovation and production, impose special hardships on employees and specialized professionals who are trained to perform specific jobs, and may constitute restraint of trade and commerce.
c. Limiting severance agreements will stimulate New Jerseys economy by preserving and providing jobs and by providing opportunities for employees to establish new business ventures and new job opportunities in the State.
2. As used in this act:
Employee means an individual who works for hire, including an individual employed in a supervisory, managerial, or confidential position.
Employer means any person, corporation, partnership, individual proprietorship, joint venture, firm, company or other similar legal entity, employs one or more employees, and shall include the State and its instrumentalities and political subdivisions, public corporations, and charitable organizations.
Fringe benefit means any vacation leave, sick leave, medical insurance plan, disability insurance plan, life insurance plan, pension benefit plan, or any other benefit of economic value, to the extent that the leave, plan, or benefit is paid for in whole or in part by the employer.
Low-wage employee means an employee whose average weekly earnings, calculated by dividing the employees earnings during the period of 12 calendar months immediately preceding the date of termination of employment by 52, or the number of weeks that the employee was actually paid during the 52 week period, are less than the Statewide average weekly remuneration as determined pursuant to paragraph (3) of subsection (c) of paragraph (3) of R.S.43:21-3.
Misconduct means conduct which is improper, intentional, connected with the individuals work, within the individuals control, not a good faith error of judgment or discretion, and is either a deliberate refusal, without good cause, to comply with the employers lawful and reasonable rules made known to the employee or a deliberate disregard of standards of behavior the employer has a reasonable right to expect, including reasonable safety standards and reasonable standards for a workplace free of drug and substance abuse.
No-poach agreement means any agreement between employers or between an employer acting as a contractor and any legal person acting as a contractee that restricts or hinders the ability of an employer to contract for the services of a low-wage employee.
Pay means hourly wages or periodic salary, including tips, regularly paid and nondiscretionary commissions and bonuses, and regularly paid overtime. Pay shall not mean fringe benefits.
Restrictive covenant means an agreement between an employer and an employee arising out of an existing or anticipated employment relationship, or an agreement between an employer and an employee with respect to severance pay, under which the employee or expected employee agrees not to engage in certain specified activities competitive with the employees employer after the employment relationship has ended.
Trade secrets has the meaning given in section 2 of the New Jersey Trade Secrets Act, P.L.2011, c.161 (C.56:15-2).
3. a. An employer may require or request that an employee enter into a restrictive covenant as a condition of employment or with respect to severance pay as provided in this act. A restrictive covenant is enforceable to the extent that it meets the following requirements:
(1) If the agreement is entered into in connection with the commencement of employment, the employer shall 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 employees employment or, if the agreement is entered into after commencement of employment, the employer must provide the agreement at least 30 business days before the agreement is to be effective. The agreement shall be signed by the employer and the employee and expressly state that the employee has the right to consult with counsel prior to signing.
(2) The agreement shall not be broader than necessary to protect the legitimate business interests of the employer, including the employers 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. An agreement may be presumed necessary 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.
(3) The agreement may restrict the employees engaging in activities competitive with the employees former employer for a period not to exceed 12 months following the date of termination of employment.
(4) The agreement shall be reasonable in geographical reach and limited 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, and shall not prohibit an employee from seeking employment in other states.
(5) The agreement shall be reasonable in the scope of proscribed activities in relation to the interests protected and limited to only the specific types of services provided by the employee at any time during the last two years of employment.
(6) The agreement shall not penalize an employee for defending against or challenging the validity or enforceability of the covenant.
(7) The agreement shall not contain a choice of law provision that would have the effect of avoiding the requirements of this section, if the employee is a resident of or employed in the State at the time of termination of employment and has been for at least 30 days immediately preceding the employees termination of employment.
(8) The agreement shall not waive an employees substantive, procedural and remedial rights provided under this act, any other act or administrative regulation, or under the common law.
(9) The agreement shall not restrict an employee from providing a service to a customer or client of the employer, if the employee does not initiate or solicit the c