May 14, 2018

Bill regarding noncompete agreements reported out of committee

A bill (A-1769) that would limit certain provisions in, and enforceability of, certain noncompete agreements was reported out of Assembly Labor Committee on May 10. PIANJ testified against the bill because it would restrict employers’ ability to utilize noncompete clauses to protect their business interests. Under the terms of the bill, an employer may require an employee to enter into a noncompete agreement—a term that is ambiguously defined in the bill—only if the agreement meets certain requirements (e.g., that the agreement be entered into at least 30 days before the start of employment; or the employer must give the employee 30 days to review before the agreement is effective; and agreements cannot last for longer than a 12-month period).

Under the bill, these agreements would not be enforceable against any employees who are: nonexempt under the Fair Labor Standards Act; interns; seasonal or temporary workers; employees who have been terminated without good cause or have been laid off; or any employee who works for an employer for less than a year.

Finally, this bill would require that during the time the agreement is in effect (i.e., after the employee has left the employer) that the employer pays the employee an amount equal to 100 percent of his or her wages that the employee would have been entitled to if he or she still worked for the employer and the employee would continue to maintain any fringe benefits he or she had received during employment. Essentially, the employer would be required to give the employee a 12-month paid vacation.

PIA adamantly opposes this bill. While many professional, independent insurance agencies do not use noncompete agreements, which traditionally restrict where an employee can work following a termination of employment with an agency, the more limited nonsolicitation and nondisclosure agreements are used with regularity. While the intention of this bill seems to be to restrict the more onerous noncompete agreements, PIANJ has concerns that it would apply to nonsolicitation and nondisclosure agreements as well. Any restriction of a business to use these latter types of agreements could have a devastating impact on insurance agencies. An agency’s value resides largely in its customer lists. Nonsolicitation agreements are vital to an agency’s ability to protect those customer lists. Without the access to this information, an agency would be at the mercy of its employees and agency values would plummet. PIA will continue to fight against this bill to ensure that agencies still are able to use the tools necessary to protect their assets.

During the testimony, the bill’s sponsor, Assemblywoman Annette Quijano, D-20, expressed her willingness to discuss changes to the bill.