Over the last several weeks, as 2023 was drawing to a close, I received several questions about whether non-compete agreements are still enforceable in New Jersey. The confusion in this area is understandable. With efforts happening at the federal government level to ban non-compete agreements nationally, and initiatives working their way through the New Jersey legislature to radically modify the law on enforcement of such agreements here in New Jersey, no wonder employers are currently baffled about the present state of the law in this very important area.
As things currently stand, non-compete restrictions are still enforceable in New Jersey. None of the bills working their way through the New Jersey Legislature have succeeded yet and none are on the verge of being presented to the governor for enactment. So, at present, New Jersey law in this area remains as it has been for quite some time: that so long as non-compete agreements contain reasonable restrictions (in both time and geographical reach) and are narrowly tailored to serve legitimate business interests (such as protection of client relationships or proprietary information), they are still enforceable in New Jersey.
On the federal level, the situation continues to evolve. The rule that the Federal Trade Commission (“FTC”) proposed back in January 2023 that would ban almost all non-compete restrictions nationally is still not in effect. While the period for public comment on the proposed rule has long passed, the FTC has still not formally adopted the rule and it is unclear when such action will happen, though some media outlets have reported based on internal agency sources that this could occur in April 2024. Even if that actually occurs, one can expect there to be legal challenges filed by private parties so it is unclear whether such a rule will ever be allowed to be enforced by the courts. This dynamic is even more legally unsettling since this legal fight over enforcement of the rule will be happening during an election year.
Along with the FTC, the National Labor Relations Board (“NLRB”) has also jumped into the fray in challenging the enforceability of non-compete restrictions. The General Counsel for the NLRB issued an enforcement guidance memo back in May 2023 that announced that, in theory, non-compete restrictions could under some circumstances infringe upon an employee’s right to engage in certain protected activities under federal labor law by restricting an employee’s access to future employment opportunities. While noting that non-compete restrictions may be legitimate under certain limited circumstances, the memo does not provide any details on what those circumstances might be leaving employers with scant advice on what the General Counsel may view as legally viable restrictions. The good news for employers is that while the memo may reflect the views of the current General Counsel, it is not the law, meaning that it currently has no binding impact on enforceability of non-compete restrictions nationwide, though it could come into play for a litigant before the NLRB.
With 2024 around the corner, it should be an interesting year for non-compete legal developments. With this cascading environment of possible legal restrictions on enforcement, employers are wise to proceed cautiously in both how they draft non-compete agreements and in deciding from whom non-compete agreements are to be sought. Making sure that such agreements are narrowly tailored to serve legitimate business interests and that they are sought only from employees whose departure could indeed threaten the welfare of a business will go a long way in ensuring the enforceability of such arrangements.
May everyone have a happy and (legally) healthy 2024!
