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Changes may be coming to non-compete clauses: Here is what you should know!

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Changes may be coming to non-compete clauses: Here is what you should know!

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New Jersey is what is referred to in law as a “blue pencil” state.” That is to say, New Jersey courts retain the ability to declare portions of a contract or agreement unenforceable, while finding others enforceable—albeit, sometimes, through the court’s own revision. For example, this so-called blue pencil power allowed the Court in Community Hospital Group, Inc. v. More, 183 N.J. 36 (2005) to order the New Jersey Chancery Court to revise the geographic restriction applicable to a physician from 30-miles to some radius less than 13-miles.

With that said, the legal landscape of post-employment agreements appears to be trending toward increased employee protections. In late 2017, the New Jersey legislature introduced bills before the state Senate (S3518) and General Assembly (A5261).  The legislature’s stated purpose behind the bills is to regulate the use of noncompete clauses as they have been found to “impede the development of business in the State . . .” and “discourage innovation and production.” In effect, the bills force New Jersey employers to further narrowly tailor their noncompete clauses to protect legitimate business interests.

For example, if passed, the legislation would limit certain provisions in and the enforceability of restrictive covenants. In their current state, the bills include a mandatory 30-day review period of a noncompete clause before it becomes effective, a limitation of 12 months following termination, removal of some of the discretionary “blue pencil” powers previously afforded to the courts, and an authorization to the courts to award the former employee (who is successful in voiding a former employer’s noncompete clause) liquidated damages in an amount up to $10,000, in addition to damages, other costs, and attorneys’ fees.

In practice, New Jersey employers that wish to utilize a noncompete agreement, or already have such a clause in their employment contracts, should employ the services of a qualified attorney to determine whether such a clause is overly restrictive. For New Jersey employees, it is equally important to consult with a qualified attorney regarding a noncompete clause prior to signing an employment contract. For both employers and employees evaluating the enforceability of a noncompete clause, it is important to recognize the varying analyses that a court undertakes specific to each industry and profession. Lastly, going forward, it is vitally important to keep an eye on the proposed legislation under bills S3518 and A5261, which could significantly impact the way noncompete clauses are written and enforced.

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