On May 19, 2025, the New Jersey legislature followed in New York’s footsteps and introduced two bills, S.B. 4385 and S.B. 4386, seeking to significantly curtail, if not totally ban, the use of non-compete clauses in the employment relationship.

S.B. 4385

General Prohibitions

S.B. 4385 aims to ban “no-poach” agreements and non-compete clauses for most workers, even those agreements or clauses entered into before the bill is signed into law.

The proposed bill defines a “non-compete clause” broadly to mean any agreement arising out of an “existing or anticipated employment relationship” that prohibits, penalizes, prevents, or hinders a worker from seeking or accepting work with a different employer after the employment relationship ends, or from operating a business after the employment relationship ends. Severance agreements and workplace policies fall within this definition. The proposed bill also renders “no-poach” agreements, an agreement between two employers to not hire each other’s workers, void and unenforceable, as such agreement would hinder a worker’s ability to obtain employment.

Limited Exceptions

As currently drafted, S.B. 4385 provides for few exceptions to the encompassing ban. These exceptions include non-compete clauses entered into pursuant to the sale of a business, where the cause of action relating to the non-compete clause accrued prior to effective date of the ban, and existing non-compete clauses for senior executives entered into prior to the effective date of the ban so long as certain criteria is satisfied.

Non-Competes for Senior Executives

The proposed bill differentiates between workers who are not senior executives and those who are. A “senior executive” means a worker who holds a “policy-making” position and whose total compensation is $151,164 or more per year in the year immediately preceding their termination of employment. A “policy-making” position includes a business entity’s president, chief executive officer or the equivalent, or any other officer or individual similar to an officer who has “final authority to make policy decisions that control significant aspects of a business entity or common enterprise of which the entity participates.”

For workers who are not senior executives, the proposed bill prohibits non-compete clauses for such workers, and would extend to clauses entered into prior to the effective date of the ban. Under the proposed bill, employers are required to notify the worker within thirty (30) business days after the effective date of the ban that the non-compete clause will not be, and cannot legally be, enforced against the worker. The proposed bill provides “model” language for the required notice, which includes a disclaimer that: “You may seek or accept a job with any company or any person—even if they compete with (employer name).”

With respect to a worker who is a senior executive, non-compete clauses entered into prior to the effective date of the ban are enforceable only if certain criteria is satisfied, including:

• Employers must provide the senior executive with written notice within 30 business days after the effective date of the ban describing the requirements of the ban and all revisions made to the provisions of an existing non-compete clause in order to comply with the requirements of the ban. Any revised non-compete clause must be executed again, after the senior executive is advised of their right to seek counsel.
• Any non-compete clause must be no broader than necessary to protect the employer’s legitimate interests, such as the protection of trade secrets. A non-compete clause can be presumed necessary if the legitimate business interests cannot be adequately protected through an alternative agreement, such as a non-solicitation or confidentiality agreement.
• A non-compete clause must comply with the guardrails imposed by New Jersey common law, including that it must be reasonable in time, geography, and scope, not unduly burdensome on the worker or injurious to the public, and consistent with public policy. The proposed bill provides its own interpretation of what these guardrails mean:
  • A maximum temporal limitation of twelve (12) months.
  • Geographic limitations tied to the geographic areas in which the senior executive provided services or had a material presence or influence during the two (2) years preceding the date of their termination and confined to New Jersey. This has significant impact on employers in the tri-state area, as a former worker based in New Jersey, for example, could simply join a competitor in New York under the language of the proposed bill.
  • Activities restrictions tied to the employer’s legitimate interests and limited to only the specific types of services provided by the senior executive during the last two (2) years of their employment.
• A non-compete clause cannot penalize a senior executive for defending against or challenging the validity or enforceability of the non-compete clause, nor can it require the senior executive to waive their substantive, procedural, or remedial rights.
• A non-compete clause cannot contain a choice of law provision applying another state’s laws if the senior executive is and has been for at least thirty (30) days immediately preceding their termination, a resident of or employed in New Jersey.
• A non-compete clause cannot restrict a senior executive from providing services to the employer’s customers or clients so long as the senior executive does not initiate or solicit the customer or client.
• A non-compete clause must specify that the employer will provide at least ten (10) days’ written notice of the employer’s decision to enforce the non-compete, unless the senior executive has been terminated for misconduct.
• Unless the senior executive has been terminated for misconduct or breaches their contractual obligations, the employer must continue the senior executive’s salary or pay during the restricted period and make any benefit contributions needed to maintain the fringe benefits to which the senior executive would be entitled during the restricted period.

Rights, Remedies, & Notice Requirements

The proposed ban affords aggrieved workers a private right of action, with a two (2) year statute of limitations accruing from the later of: (1) when a prohibited non-compete clause or no-poach agreement was signed; (2) when the worker learns of the prohibited non-compete clause or no-poach agreement; (3) when the employment relationship is terminated; or (4) when the employer takes any step to enforce the prohibited non-compete clause or no-poach agreement. A court has jurisdiction to void any prohibited clause or agreement and to order all appropriate relief, including enjoining the conduct of the employer, ordering the payment of liquidated damages of not more than $10,000, and awarding lost compensation, damages, and reasonable attorneys’ fees and costs.

If signed into law, employers are required to post a copy of the ban, or a notice approved by the New Jersey Department of Labor in a prominent place in the work area. Failure to comply with the notice obligations can result in civil penalties.

S.B. 4386

General Prohibitions

S.B. 4386 largely parallels S.B. 4385 and bans no-poach and non-compete agreements in the employment relationship with a particular focus on clauses that “indebt” employees to their former employers. S.B. 4386 applies retroactively and broadly prohibits clauses or agreements that restrain an employee from engaging in a lawful profession, trade, or business after the conclusion of the employee’s employment, including, but not limited to:

• A non-compete clause, which is defined broadly to include any employment contract or agreement, or term or provision thereof, “that prohibits an employee from, penalizes the employee for, or functions to prevent the employee from, seeking or accepting employment with any person, or operating a business, after the conclusion of the employee’s employment with the employer.”
• A term that requires a debtor to pay for a debt if the debtor’s employment or work relationship with the employer is terminated. A “debtor” means “an individual who is or may become liable to pay an employer, a prospective employer, a third-party entity, or other business entity for all or part of an employment-related cost, education-related cost, or other debt.” A “debt” means “money, property, or their equivalent that is due or owing or alleged to be due or owing from an individual to any employer or other person, including, but not limited to, for employment-related costs, education-related costs, or a consumer financial product or service.”
• Any term that imposes any penalty, fee, or cost on an employee for terminating the employment relationship, including, but not limited to, an employment promissory note, a replacement hire fee, a retraining fee, reimbursement for immigration or visa related costs, bondage fees, liquidated damages, lost goodwill, or lost profit.

Rights, Remedies, & Notice Requirements

S.B. 4386 requires that employers notify employees of the proposed ban within thirty (30) days of its effective date. Like S.B. 4385, S.B. 4386 affords aggrieved employees a private right of action and outlines a substantively identical two (2) year statute of limitations provision. A court has jurisdiction to award injunctive relief, order the payment of liquidated damages, and award lost compensation, actual damages, punitive damages of not more than $5,000 per employee, and reasonable attorneys’ fees and costs. An aggrieved employee can also file a complaint with the New Jersey Department of Labor, which is authorized to enforce the bill.

Key Takeaways

These proposed bills are in the early stages of the legislative process. Notwithstanding this, it is clear that legislators in New Jersey, like in other states, are seeking to fill a void left by the federal government and to curtail the use of non-compete and no-poach agreements in the employment context. Employers should stay informed about the status of these bills and review the restrictive covenant agreements they have in place to assess how these bills might impact those agreements. We will monitor developments in this area and provide updates as they become available.