New Jersey has joined a number of other states by recently seeking to bar companies from enforcing non-compete agreements. The proposed legislation is meant to make it easier for laid off workers to find employment, which would in turn help the state decrease the number of people receiving unemployment benefits. If this bill were to pass into law, any non-compete agreement between a New Jersey resident and his or her previous employer would be unenforceable if that person qualifies for unemployment benefits.

This bill is not yet very far along, but the idea of limiting the use and enforcement of non-compete contracts has gained a lot of traction in recent months. New Jersey is among at least five states that are considering this type of employment legislation.

Non-compete agreements are generally used by employers to keep employees from quitting to go work for a competitor; to prohibit former employees from soliciting its customers; and to ban former employees from disclosing confidential information to a competitor. Typically, they are only enforceable if they are limited in duration and scope–generally, non-compete provisions should only last a year or two and should be limited in terms of geography.

Politicians and economists have different opinions on whether non-competes are good or bad for the economy. Some say that non-competes keep employees in their current jobs, and thus help employment numbers. Others argue that non-competes may stifle competition and growth. For example, in California, the only state that prohibits non-competes, the freedom of workers to bounce between employers and share ideas has been considered as a factor in the success of Silicon Valley.

While it may be too soon to know whether New Jersey will pass this bill, efforts to restrict the use of non-compete agreements are expected to continue throughout the U.S. Those who are bound by non-compete agreements or another type of restrictive covenant may want to pay attention to these evolving laws, and if a former employer moves to enforce an agreement it may be wise to seek legal counsel.

Source: Thomson Reuters News & Insight, “Analysis: Unleashing job hoppers could give economy a bounce,” Reynolds Holding, April 25, 2013

Source: Forbes, “New Jersey Joins Wave Of States Considering Limitations on Noncompete Agreements,” Betty Graumlich, April 16, 2013

• Our employment law firm in New Jersey provides legal counsel for those pursuing various types of employment litigation.