Aug 28, 2018

PIANJ opposes bill that may restrict nonsolicitation and nondisclosure agreements

A bill, S-2872, that would restrict the ability of an employer to utilize noncompete clauses to protect its business interests was introduced in the state Senate on Aug. 27, 2018. 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—but only if the agreement meets certain requirements. These requirements include, among other things:

• that the agreement be entered into at least 30 days before the start of employment and if provided after employment the employer must give the employee 30 days to review before the agreement is effective; and
• the agreement cannot last for longer than a 12-month period.

In addition these type of agreements would not be enforceable against any employees that 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, which the employee would have been entitled to if he or she still were working for the employer and continues to maintain any fringe benefits the employee 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 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 great regularity.

While the intention of this bill seems to be to restrict the more onerous noncompete agreements, PIA is concerned that it would apply to nonsolicitation and nondisclosure agreements as well. Any restriction of a business to use these latter types of agreements could be devastating to 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 ability 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 agencies still are able to use the tools necessary to protect their assets.

This bill has been referred to the Senate Labor Committee. A similar bill was moved out of the Assembly Labor Committee in May.