A new bill (A-3970) introduced in the New Jersey Assembly on April 4, 2013 may prevent employers from using restrictive covenants to protect their business interests and confidential information for employees who would be eligible for unemployment benefits.  The law would only apply prospectively to covenants signed after enactment of the law for employees “eligible to receive [State unemployment] benefits.”  The 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.”

Although the bill’s passage is unclear, New Jersey employers are advised to take proactive measures, including ensuring that its current workforce have executed restrictive covenants and confidentiality agreements.  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.

Employers contemplating restrictive covenants for the workforce, or contemplating revisions to existing covenants, should consider having the employees execute the covenants before the potential passage of this law.