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New Jersey Assembly Introduces New Bill Eliminating Certain Restrictive Covenants for Employees Eligible for Unemployment Benefits

April 24, 2013

A new bill (A-3970) introduced in the New Jersey Assembly on April 4, 2013 threatens to prevent employers from using restrictive covenants to protect their legitimate business interests and confidential information. While the bill would only apply prospectively to covenants signed after enactment of the bill for employees “eligible to receive [State unemployment] benefits,” the broad scope of the proposed law makes it a risk to employers. The key aspect of this legislation is that qualifying former employees “shall not be bound by any covenant, contract or agreement … not to compete, not to disclose, or not to solicit.” Therefore, there is the risk that the enforceability of a restrictive covenant would be decided not by a court, but driven ultimately by the Department of Labor and Workforce Development.

Although the bill’s passage is unclear, New Jersey employers are well advised to take proactive measures, including ensuring that its current workforce have executed restrictive covenants and confidentiality agreements. Because the bill is vague and ambiguous, it is still unknown how it would be reconciled with New Jersey’s new Trade Secrets Act and the use of “garden leave” provisions that restrict competition for employees for a period after notice of termination.

The text of the bill may be found at: http://www.njleg.state.nj.us/2012/Bills/A4000/3970_I1.HTM.

For more information, please contact:

Catherine P. Wells, Member of the Firm
(973) 530-2051 | cwells@wolffsamson.com  

John O. Lukanski, Member of the Firm
(973) 530-2073 | jlukanski@wolffsamson.com  

Margaret O’Rourke Wood, Member of the Firm
(973) 530-2063 | mwood@wolffsamson.com  

Denise J. Pipersburgh, Associate
(973) 530-2090 | dpipersburgh@wolffsamson.com