N.J. lawmaker wants to crack down on non-compete clauses

New Jersey State Capitol building in Trenton. (Alan Tu/WHYY)

New Jersey State Capitol building in Trenton. (Alan Tu/WHYY)

There should be tougher restrictions on companies that force potential employees or current workers to sign non-compete clauses, according to one New Jersey lawmaker.

State Sen. Bob Gordon, D-Bergen, is proposing a series of rules on businesses in an effort to help workers who feel like they have to sign potentially onerous agreements to get or keep their jobs.

New Jersey is one of a number of states beginning to take a closer look at regulating non-compete clauses, an issue that has largely been dealt with by the courts.

Many companies use non-compete clauses to protect trade secrets or other confidential information. Often the legal agreements block former employees from working for a competitor for a certain period of time.

While Gordon said he recognizes the legitimate business need to protect company information and maintain a competitive edge, he said the state must also stand up for workers who feel hamstrung by these agreements.

When asked for a comment, the two main business groups in the state — the New Jersey Chamber of Commerce and the New Jersey Business and Industry Association — said they had not fully reviewed the legislation, which was introduced earlier this month.

The bill has yet to have a hearing.

Gordon was inspired to write the legislation after a constituent said he had been recently laid off but was having trouble finding a new job because of a non-compete agreement he had signed with his former employer. “That just created great difficulty for him and his family,” Gordon said, “and we thought it was unfair.”

Such agreements are not rare. A recent study found that 18 percent of U.S. workers are bound by non-compete clauses.

The agreements also span different industries, as recent news reports have shown, even reaching into the fast food industry. “I always associated these non-compete provisions with Silicon Valley,” Gordon said. “When I heard that it’s affecting people at Subway and Blimpie’s, something seemed wrong.”

Under Gordon’s proposal, companies would only be allowed to require non-compete clauses that pertain to its legitimate business interests, including protecting trade secrets.

College students, apprentices, seasonal and temporary workers, and low-wage employees would be exempt from the agreements.

The bill would also require companies to pay the full salary and benefits of a former employee for the duration of the non-compete agreement, unless the employee was fired for cause.

Although Gordon has yet to solicit input from the business community, he said he welcomes their suggestions for tweaks to the bill.

University of Maryland business professor Evan Starr, who has studied non-compete clauses, said firms use the contracts to protect their business interests but also to limit turnover and keep wages low.

Starr noted that the legal arrangements can also benefit workers (as long as firms don’t “ambush” employees with the contracts after they have already taken the job) by giving workers a sense that their employers are committed to them.

“They kind of accept the job and they accept the non-compete, and they say, ‘OK, I’m in this, maybe the firm is going to invest in me. So I’m going to agree to this contract because I know I’m going to be better off.’ ”

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