Attorneys should be wary of how non-competition and nondisclosure clauses are drafted following the March 20. 2019, enactment of S-121. We have already editorialized on this legislation as it prohibits forced non-disclosure provisions in settlement agreements in employment discrimination actions. There is, however, a provision added by the Assembly in late January that could mistakenly be read as expanding or restricting an employer's right to enforce non-competition and nondisclosure agreements.

Section 2c of the Act provides:

“1. Notwithstanding any other provision of law to the contrary, this section shall not be construed to prohibit an employer from requiring an employee to sign an agreement;

“(1) in which the employee agrees not to enter into competition with the employer during or after employment; or

“(2) in which the employee agrees not to disclose proprietary information which includes only non-public trade secrets, business plan and customer information.”

Non-competition agreements affecting former employees are generally disfavored in the law. The former employer is required to show a need to protect proprietary information. Without an agreement, the former employee may open a competing business without a temporal or spatial limitation. Cases have said that it is the “American way” for an employee to learn a trade or profession, leave the employment, and then enter into competition with a former employer. Even with a restrictive covenant, agreements that merely prevent competition have been held unenforceable; and where the employer has a protectable interest, the agreements are subject to limitation to a reasonable time, place and scope of activity.

At first glance the new act in subsection (1) might look as if it grants broad powers to employers to require broad non-competition agreements. Yet one must not overlook the prefatory language of section c. The statute states that “this section shall not be construed to prohibit an employer” to require non-competition agreements. We doubt that the Legislature intended to abrogate the body of law defining permissible and impermissible constraints on a former employee's competition. Existing law governing non-competition agreements appears to be unaffected.

Subsection (2) only slightly redefines the lawful scope of nondisclosure agreements. While there is no grant of additional rights, there might be some limitations.  Employees may now only be restricted from disclosing “proprietary” information, limited by the Act to “trade secrets” (see the New Jersey Trade Secrets Act's definition of a trade secret in N.J.S.A. 56:15-2) to which is now added “non-public … business plan and customer information,” terms expressly encompassed by existing case law. There are possibly other classes of information that employers might attempt to limit, but would be precluded by the act. These would include information of no “independent economic value, actual or potential” (N.J.S.A. 56:15-2), or other matters that employers would prefer former employees not to discuss, but will now fall outside of his new statute. We therefore suggest a careful review of employment agreements, settlement agreements, employee manuals and the like to check compliance with his new act.