Articles Discussing Restrictive Covenants In New Jersey.

As has become an almost annual tradition, New Jersey legislators have proposed bills that would severely limit noncompete agreements. With the Federal Trade Commission (FTC) no longer seeking to ban noncompetes, the battle has returned to states, and New Jersey is on the front line—and this could be the year

Last week, the New Jersey Assembly’s Labor Committee passed bill A3715, designed to sharply limit the available provisions, use, and enforceability of restrictive covenants in employment contracts by New Jersey employers. A3715 purports to address the laudable goal of exempting low-wage workers, students, and seasonal and temp workers from post-employment restraints or covenants. But the bill goes much further and, if passed, the new law will effectively end more than 100 years of non-compete use by New Jersey employers.

In novel and important decision, DePy Synthes Sales v. Howmedica Ostionic’s, Ninth Cir. Case No. 21-55126, on March 14, 2022, the Ninth Circuit Court of Appeals upheld the lower court’s decisions to prevent a former employer from enforcing non-California forum selection clauses and a non-compete against its former California employee.

Providing a private right of action and barring judicial modification are just two features of a bill that aims to severely limit the use of non-compete agreements in New Jersey.

The absence of actual economic loss to an employer as a result of an employee’s breach of the duty of loyalty does not preclude the employer from being awarded the equitable remedy of disgorgement, a unanimous New Jersey Supreme Court has ruled. Kaye v. Rosefielde, No. A-93-13 (Sept. 22, 2015).

Executive Summary: Like the hit show “How to Get Away with Murder,” the recent New Jersey ruling in Spencer Sav. Bank SLA v. McGrover (App. Div. March 5, 2015), instructs employees looking to remove their employers’ confidential documents and trade secrets. While still employed with Spencer Savings Bank, loan officer Michael McGrover admitted taking company documents and transmitting them his new employer. The appellate court nonetheless confirmed that McGrover breached no duty of loyalty to Spencer because the “competing rights of the employee” outweighed Spencer’s right to safeguard its confidential documents.

A recent decision from the United States District Court for the District of New Jersey highlights the perils of delay before applying for injunctive relief. In PTT, LLC v. Gimme Games, et al. No. 13-7161 (JLL/JAD), PPT, a slot machine developer, sued competitor Gimme Games and former PPT executives who started Gimme Games, for misappropriation, unfair competition, and patent infringement. More particularly, PPT alleges in the pending lawsuit that Gimme Games creates slot machine games with the same look and feel as PPT’s games, especially with respect to “oversize symbols.”

A New Jersey federal court recently granted a defendant-company’s motion to compel arbitration pursuant to a non-compete agreement between the plaintiff-company and two former employees who had discontinued employment with the plaintiff and went to work for the defendant. The case is Precision Funding Group, LLC v. National Fidelity Mortgage, Civ. No. 12-5054 (RMB/JS), 2013 U.S. Dist. LEXIS 76609, 2013 WL 2404151 (D.N.J. May 31, 2013).

A bill that would “invalidate” non-compete, non-disclosure, and non-solicitation agreements entered into between an employer and its former employee, if the former employee is eligible for unemployment benefits following the cessation of his or her employment, has been introduced in the New Jersey State Assembly. Assembly Bill 3970 would apply only to agreements entered into after the legislation was enacted.

Executive Summary: New Jersey legislators have proposed making a variety of post-employment restrictive covenants unenforceable where the employee is eligible for unemployment benefits. Many high-level sales employees and employees with specialized technical knowledge are subject to such restrictions, which range from limiting competition with a former employer to prohibiting disclosure of trade secrets and confidential information learned during employment.

In January 2012, New Jersey enacted its version of the Uniform Trade Secrets Act (UTSA). On December 7, 2012, in SCS Healthcare Marketing, LLC v. Allergan USA, Inc., a New Jersey Superior Court recognized that the New Jersey Trade Secrets Act (NJTSA) modifies the Uniform Trade Secrets Act to preserve New Jersey’s non-conflicting common law relating to trade secrets.

In a recent trade secrets case, Stryker v. Hi-Temp Specialty Metals, Inc. [pdf], a federal court in New Jersey made clear that the involuntary termination of an employee does not preclude enforcement of reasonable post-employment restrictions.

A recent decision from the Eastern District of Pennsylvania demonstrates that, despite allegations of employee wrongdoing and trade secret misappropriation, the facts may not support claims under some statutory computer offense laws. Even the New Jersey Computer Related Offenses Act (NJCROA), which is broader than the federal Computer Fraud and Abuse Act (CFAA), requires specific elements to support a claim. Thus, what many consider a run-of-the-mill misappropriation case will not necessarily lead to a NJCROA claim.

On January 9, 2012, New Jersey Governor Chris Christie signed into law the New Jersey Trade Secrets Act, which establishes principles governing protection of trade secrets and remedies for their misappropriation. In doing so, New Jersey has joined the mainstream in the trade secrets arena: New York, North Carolina, Massachusetts, and Texas are the only remaining states without a statute modeled on the Uniform Trade Secrets Act. While the New Jersey Trade Secrets Act introduces a statutory framework governing trade secret protection, in many respects it does no more than codify existing case law. The Act became effective on January 9, 2012.