PROPOSED BILL IN NEW JERSEY IF PASSED WILL INVALIDATE COVENANTS NOT TO COMPETE IN EMPLOYMENT CONTRACTS – TIME IS NOW IF YOU WANT EMPLOYEES TO SIGN RESTRICTIVE COVENANTS

Last month the New Jersey Legislature introduced Assembly Bill 3970 that if passed will invalidate any restrictive covenant in an employment contract if the affected employee was eligible to receive unemployment compensation benefits. The reasoning behind this rule is that an employee who lost his job through no fault of his own (and thus be eligible for unemployment compensation) should not be held hostage to a restrictive covenant in an employment agreement. Restrictive covenants include, for example, covenants not to compete, agreements not to solicit employees, and agreements not to disclose information.

This is quite an unusual step for the New Jersey legislature in proposing a law in an area that has typically been left to the courts to decide on a case by case basis. As it stands now, Courts inquire into whether the restriction protects a legitimate employer interest, imposes no hardship on the employee and does not injure the public. Also considered by the court is a temporal component relating to both length and geographic boundaries of the restriction.

If Assembly Bill 3970 becomes the law of the land in New Jersey, employers will probably want to take a closer look when they decide if they should challenge a former employee’s application for unemployment compensation. The proposed law however, will not apply retroactively so now is the time to act if you want your employees to sign a restrictive covenant. The attorneys at Danziger Shapiro can assist you with any questions you may have regarding this proposed bill as well as answering any other questions you may have regarding the operation of your business.

This entry is presented for informational purposes only and is not intended to constitute legal advice.