Since the supreme court’s unanimous decision in Solari v. Malady (1970), New Jersey courts have held that an agreement governing an employee’s post-termination activities “will be given effect if it is reasonable under all the circumstances of his particular case,” i.e. if it “simply protects the legitimate interests of the employer, imposes no undue hardship on the employee and is not injurious to the public.”
We think that rule has worked out quite well, but the Legislature is now considering many changes favoring greater employee mobility through A-1769, which has cleared the Assembly Labor Committee and a second reading,
Some of the bill’s provisions simply clarify existing standards or incrementally expand them. For example, it provides that “[t]he agreement shall not be broader than necessary to protect the legitimate business interests of the employer, including the employer’s trade secrets or other confidential information that would not otherwise qualify as a trade secret, including sales information, business strategies and plans, customer information, and price information.” An agreement “may be presumed necessary where the legitimate business interest cannot be adequately protected through an alternative agreement not to solicit or hire employees of the employer, an agreement not to solicit or transact business with the customer, clients, referral sources, or vendors of the employer, or a nondisclosure or confidentiality agreement.”
Other provisions would impose entirely new restrictions on agreements, such as a mandatory 30-day period for employees to review a proposed agreement and consult with counsel, and a 12-month cap on restrictions. Choice-of-law provisions that would select the law of a state more favorable to employers are nullified if the employee is a New Jersey resident when the employment is terminated. An employer would have to notify the employee within 10 days of termination that it intends to enforce the non-compete contract. There would be a geographical limitation to areas in which the employee provided services or had a material presence or influence in the past two years. “Reasonable” restrictions would be limited to the specific types of services provided by the employee during the last two years. Blue penciling is out; any specific provision in conflict with the statute is “void and unenforceable.”
One especially troublesome provision of the bill is its requirement for “garden leave.” It would require that employers provide full pay and benefits during the period of post-employment restrictions. We see no reason why an employee should be compensated for abiding by restrictions permitted by the statute to which the employee agreed and which are fair and reasonable.
This is an extremely important statute, revamping, modifying and to some extent nullifying judicial precedent. As far as we can determine, it has received little publicity and no testimony pro or con, during committee hearings. Before passage, our legislators should stop, look and listen.