As anticipated, New Jersey has joined the growing list of state legislative efforts aimed at prohibiting or restricting the use of noncompetes and no-poach agreements.

On May 22, 2025, the New Jersey Legislature introduced S4385/A5708 (the “Bill”), a comprehensive proposal that, if enacted, would significantly limit the enforceability of noncompetes and ban no-poach agreements in New Jersey. The Bill is currently pending in the Senate Labor Committee, but its potential impact on business operations, talent strategy, and contractual practices is already drawing close attention from legal and executive leadership.  

The Bill broadly prohibits an “employer,” defined to include business entities, nonprofit organizations, and public sector employers, from seeking, requiring, or enforcing a noncompete or no-poach agreements with a “worker.” The term “worker” includes non-senior employees and executives, independent contractors, volunteers, externs and interns, apprentices, and sole proprietors, without regard to compensation status or classification under state or federal law.

Noncompetes: Unenforceable Except as To Senior Executives In a Policy-Making Position

If passed, the Bill would render most existing “non-compete clauses” with a worker who is not a “senior executive” as unenforceable, and after the effective date, it would prohibit an employer from seeking or requiring a worker who is not a senior executive to execute a noncompete. Thus, if enacted into law, the Bill would apply both retroactively and prospectively, thereby prohibiting the enforcement of all noncompetes with limited exceptions.  Additionally, employers would be required to notify their workers within 30 business days of the law’s effective date that their noncompete is no longer valid or enforceable. The notification would need to be provided in a “clear and conspicuous” manner and delivered electronically or in-person.

The Bill defines a “non-compete clause” as “any agreement arising out of an existing or anticipated employment relationship between an employer and a worker, including an agreement regarding severance pay, to establish a term or condition of employment that prohibits the worker from, penalizes a worker for, or functions to prevent or hinder in any way, the worker from seeking or accepting work with a different employer after the employment relationship ends, or operating a business after the employment relationship ends.” Thus, the Bill presumably does not prohibit employers from enforcing, or entering into, other restrictive covenants, such as customer non-solicitation agreements, employee non-solicitation agreements, or confidentiality/non-disclosure agreements. 

The Bill would provide a limited exception for existing non-compete clauses with “senior executives,” defined as an individual in a “policy-making position” who earned at least $151,164 in the previous year. The compensation threshold includes salary, commissions, and bonuses, but excludes board, lodging, or other fringe benefits. “Policy-making position” is defined as “a business entity’s president, chief executive officer or the equivalent, any other officer of a business entity who has policy-making authority, or any other individual who has policy-making authority for the business entity similar to an officer with policy-making authority. An officer of a subsidiary or affiliate of a business entity that is part of a common enterprise who has policy-making authority for the common enterprise may be deemed to have a policy-making position for purposes of this paragraph.” 

If passed, the Bill would prohibit non-compete clauses for all workers, including senior executives, entered into after the effective date. 

If a noncompete with a senior executive exists prior to the Bill’s effective date, any such noncompete would need to satisfy several stringent conditions to be enforceable, including but not limited to:

1. The employer shall disclose the terms of the non-compete clause in writing to the worker not more than 30 business days after the effective date, as well as “all revisions made in the provisions of the non-compete clause necessary for compliance with the requirements of this section.” If the non-compete clause is revised, the revised non-compete clause must be signed by the employer and the worker, and the disclosure shall expressly state that the worker has the right to consult counsel prior to signing.
2. The clause is narrowly tailored to protect legitimate and related business interests, including the employer’s trade secrets or other confidential information.
3. The restricted period must not exceed 12 months post-termination.
4. The restriction must be reasonable in geographic reach and limited to geographic areas where the executive had a material presence during the two years preceding termination, and the geographic reach shall not prohibit the worker from seeking employment in other states.
5. The clause is limited to services provided by the worker during the previous two years of employment.
6. The non-compete must not penalize a worker for challenging the validity or enforceability of the noncompete.
7. The noncompete cannot contain a choice-of-law clause that has the effect of avoiding the requirements of the Bill.
8. The worker must not be required to waive any substantive, procedural, or remedial rights provided under the act, any other act or regulation, or the common law.
9. The noncompete must not restrict a worker from providing a service to a customer or client of the employer, if the worker does not initiate or solicit the customer or client.
10. The noncompete shall not be unduly burdensome on the worker, injurious to the public, or inconsistent with public policy.
11. The noncompete states that it shall be void if the employer does not provide written notice to the worker of the employer’s intent to enforce the non-compete clause within 10 days after the termination of an employment relationship between the employer and the worker, but the notice is not required if the worker has been terminated for “misconduct.” The Bill defines “misconduct” as  conduct that “is improper, intentional, connected with the individual’s work, within the individual’s control, not a good faith error of judgment or discretion, and is either a deliberate refusal, without good cause, to comply with the lawful and reasonable employer rules made known to the worker, or a deliberate disregard of standards of behavior the employer has a reasonable right to expect, including reasonable safety standards and reasonable standards for a workplace free of drug and substance abuse.”
12. The noncompete provides that during any period after the employment relationship ends in which the worker is prevented from engaging in work or taking employment because of restrictions imposed by the non-compete clause, the employer, unless the worker is terminated for misconduct or there is a breach by the worker, shall pay the worker an amount equal to 100 percent of the pay to which the worker would be entitled for the work during that period; and make any benefit contributions needed to maintain the fringe benefits to which the worker would be entitled during that period.

Any noncompete that fails to meet these standards would be deemed void. Furthermore, any noncompete made with a senior executive after the Bill’s effective date will be deemed unenforceable.

As with similar legislative efforts in other states, the Bill provides an exception for noncompetes in connection with the bona fide sale of a business, ownership interest, or substantially all operating assets. It also allows for the enforcement of a noncompete where a cause of action arose before the Bill’s effective date.

No-Poach Agreements: A Violation of Public Policy

In addition to restricting noncompetes, the Bill explicitly declares no-poach agreements to be contrary to public policy and that “any no-poach agreement shall be void.” The Bill defines a “no-poach agreement as “any agreement between employers or between an employer acting as a contractor and any legal person acting as a contractee that restricts or hinders the ability of an employer to hire, or contract for the services of, a worker, or hinders a worker from obtaining employment.”   

The Bill provides a private right of action for workers subject to or affected by a noncompete or a no-poach agreement. If passed, the Bill would enable workers to sue for injunctive relief, liquidated damages of up to $10,000, lost compensation, and attorneys’ fees. In addition, employers would be required to post a copy of the statute or an approved summary in a prominent workplace location. Repeated violation of these obligations may result in fines of up to $10,000.

Takeaways

While the Bill’s fate remains uncertain, its introduction reflects the continuing legislative trend aimed at restricting the use of noncompetes. Although on its face, the New Jersey Bill appears to allow for some exceptions to the use of noncompetes, in practicality, the Bill would not protect against unfair competition if passed as presently drafted.  As one example, if a candy company employed a top executive in New Jersey with access to its secret formula to an everlasting gobstopper, and that executive sought employment with a rival candy company but that position was in New York, then presumably the noncompete would be unenforceable under the Bill because a senior executive could seek employment in another state.  As written, the Bill’s exceptions are in name only and if the Bill is enacted would place New Jersey in largely the same position as only four other states that ban noncompetes (California, Minnesota, North Dakota, and Oklahoma).   

New Jersey businesses and those employers with employees located in New Jersey should stay tuned for updates here on New Jersey because, if the Bill is passed, employers would be required to both identify their senior executives and amend their noncompetes with their senior executives.  New Jersey employers would also need to prepare and send notices regarding any existing noncompetes with workers who are not senior executives.   

Employers should remain attentive to developments and consider proactive legal review of their noncompetes and other restrictive covenants, particularly those employers with operations in multiple states.

Ariana Tagavi contributed to this article