New Jersey Bill Could Put An End To The Use Of Non-Compete Agreements As We Know It

by Pepper Hamilton LLP

Last month, the New Jersey Legislature introduced a bill that could drastically limit the enforceability of non-compete, non-solicitation, and non-disclosure agreements that New Jersey employers routinely enter into with their employees. Such agreements are typically entered into between an employer and certain executive-level employees and/or employees who have access to confidential/trade secret information or important customer relationships. These agreements protect an employer by preventing the employee from working for the employer’s competitors for a finite period of time after termination of employment, soliciting its employees and/or customers for a finite period of time after termination of employment, and disclosing the employer’s confidential information at any time after the employment relationship ends. Employers consider these agreements to be necessary to protect legitimate business concerns.

Under the current law, a non-compete agreement is generally enforceable in New Jersey so long as it is reasonable in scope, protects the legitimate business interest of the employer in confidential information or customer relationships, does not impose an undue hardship on the employee, and is not injurious to the public. Recently, however, a bill was introduced in the New Jersey State Legislature that would significantly curb an employer’s ability to enforce these types of agreements.

On April 4, 2013, Assemblymen Peter J. Barnes III, Joseph V. Egan, and Wayne DeAngelo introduced a bill (A3970) to the New Jersey Assembly which, if passed, would render non-competition, non-solicitation, and non-disclosure agreements between employers and their employees invalid if the employee qualifies for unemployment compensation. The bill does, however, provide for a grandfather clause, which permits any agreements that were in effect on or before the date of enactment to remain valid. The bill has been referred to the Assembly Labor Committee. The Governor’s Office of New Jersey has not commented on the proposed legislation. The bill can be found at

New Jersey’s proposed legislation is not the only recent bill to curtail the enforceability of restrictive covenants for employees. Minnesota, Massachusetts, and Virginia also have proposed such legislation, albeit less expansive than New Jersey’s. In Minnesota, Bill H.F. No. 506 would void contracts, including employment agreements containing restrictive covenants, that prohibit parties from “exercising a lawful profession, trade, or business” except when a business is sold or a partnership or limited liability is dissolved. Proposed legislation in Virginia (House Bill 1187) would make any contract that serves to restrict an employee or former employee from engaging in a lawful profession, trade, or business of any kind unlawful, except in the following circumstances: persons selling a business, former partners in a partnership, and former members in a limited liability company, who agree to refrain from carrying on a similar business within a specified geographic area in which the original entity carries on business. Finally, Massachusetts House Bill 2293, the least expansive of the proposed legislation, codifies Massachusetts’ common law requiring that non-compete agreements must be necessary to protect one or more of the following legitimate business interests of the employer: (i) trade secrets to which the employee had access while employed; (ii) confidential information that would otherwise not qualify as a trade secret; or (iii) goodwill and/or customer relationships. The most recent draft of the Massachusetts bill limits the duration of non-compete agreements to six months.

All of these bills are currently in the committee stage and have yet to be passed. New Hampshire however, passed a law (RSA 275:70) that went into effect in July 2012 that requires employers to provide a copy of any noncompetition agreement to employees before or contemporaneously with any offer of employment. The failure to abide by this notification requirement renders any such agreement void.

In comparison to other states’ legislation relating to the enforceability of non-compete agreements, New Jersey’s proposed legislation is by far the most far-reaching. If passed, this bill will have a significant effect on employers’ abilities to protect their most valuable business assets. Notably, unlike the other states, New Jersey’s bill covers not only non-compete agreements, but also non-disclosure and non-solicitation agreements. Moreover, tying the agreements’ enforceability to an employee’s eligibility for unemployment compensation is troubling on several levels. An employee whose employment is terminated by the employer is eligible for unemployment benefits unless the employee committed “gross misconduct,” a standard that is very difficult for the employer to establish. Unemployment compensation tribunals generally err on the side of granting benefits. These tribunals decide matters without any significant discovery, and, while they may be adequate to determine whether an ex-employee receives unemployment compensation for a limited period of time, they are not equipped to make decisions that affect very important employer interests, such as the protection of confidential information and/or customer relationships. As a result, tying enforceability of non-competition, non-disclosure, and non-solicitation covenants to unemployment compensation eligibility will very likely result in many agreements being deemed unenforceable.

It remains to be seen whether the bill will pass in its current form, some amended version or at all. In the meantime, employers should monitor New Jersey state legislation and continue to enter into non-compete/non-solicitation/non-disclosure agreements when appropriate.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Pepper Hamilton LLP | Attorney Advertising

Written by:

Pepper Hamilton LLP

Pepper Hamilton LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.