New Jersey Courts have consistently enforced covenants not to compete (also known as restrictive covenants) contained within an employment agreement. Those covenants have traditionally been used by an employer to prevent an employee from leaving his/her employ and immediately soliciting the employer’s customers and/or clients – – many of whom the employee would not have known except as a result of working for that particular employer. Those covenants have also been used to prevent an employee from leaving his/her employment and using the employer’s confidential information (such as information about the employer’s pricing, margins, profits, etc.) to gain an unfair advantage in competition with the former employer. Provided that the covenants were reasonable and not simply intended to thwart fair competition, employers could be assured that their customer/client relationships and their confidential information would be protected.
Introduced on April 4, 2013, Assembly Bill No. 3970 could potentially change that competitive landscape in New Jersey. Assembly Bill No. 3970 is designated as “an act concerning certain employment contracts and unemployment compensation” and consists of only 2 paragraphs. It specifically states:
1.An unemployed individual found to be eligible to receive benefits pursuant to the “unemployment compensation law,” R.S. 43:21-1 et seq, shall not be bound by any covenant, contract, or agreement, entered into with the individual’s most recent employer, not to compete, not to disclose, or not to solicit. This section shall not be construed to apply to any covenant, contract, or agreement in effect on or before the date of enactment …