New Jersey to Invalidate Non-Competes for Employees Voluntarily Terminated by the Employer?

Posted by Benjamin I. Fink on

A bill introduced in the New Jersey legislature would invalidate non-competes and other post-employment restrictive covenants for employees who are voluntarily terminated from their employment.

Assembly Bill No. 3970, introduced in the New Jersey General Assembly, would invalidate any non-compete or similar restrictive covenant for an individual who has been voluntarily terminated by an employer.  Specifically, the bill provides “an unemployed individual found to be eligible to receive benefits pursuant to the ‘unemployment compensation law’, . . . shall not be bound by any covenant, contract, or agreement, entered with the individual’s most recent employer, not to compete, not to disclose, or not to solicit.”

Although it is unclear whether this bill will pass in the New Jersey legislature, it is a proposed law that could have dire consequences for employers in New Jersey. One saving grace of the proposed legislation is that it will only apply to covenants, contracts or agreements entered into after the date of enactment of the law. Although on its face the proposed legislation affects only employees who are fired by the employer, the reality could be very different because New Jersey’s unemployment compensation law has been interpreted broadly.  In certain instances, employees who voluntarily resign may be considered eligible for unemployment benefits if they left work for “good cause attributable to the work.”  N.J.S.A. 43:21-5(a).

Employers with operations or employees in New Jersey may wish to consider having new agreements signed now before the law passes.