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Restrictive covenants that limit the ability of former employees to compete have been the subject of legislative limits in a number of states, including Maine, Maryland, Massachusetts, New Hampshire, Rode Island, Virginia and Washington.
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Bills that would limit the enforceability of restrictive covenants in New Jersey have been introduced into the legislature since 2017 but have failed to be adopted.
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Legislative restrictions on agreements not to compete may require minimum compensation, restrict the geographic scope and time frame of the agreement and prohibit courts from “blue penciling” unreasonable restrictive covenants rather than refusing to enforce them entirely.
Restrictive covenants continue to be disfavored or limited by legislatures in a number of states. New Jersey is among the states in which no legislative action has been taken to limit the types of employees that may be subject to restrictive covenants or the scope agreements not to compete. Bills that would limit the enforceability of restrictive covenants have been introduced in the New Jersey legislature since at least 2017 without gaining adoption. (See Assembly Bill 1650)
The Illinois legislature this week advanced legislation that will limit the enforceability of restrictive covenants against many former employees earning $75,000 or less and set limits for enforceability. These statutory limitations on the enforceability of restrictive covenants are becoming more widespread.
Illinois Effort to Enact Expansive Restrictive Covenant Legislation
In 2016, Illinois enacted the Illinois Freedom to Work Act (IFWA). In doing so, it became one of the first states to pass legislation in response to the Obama administration’s Call to Action, which asked states to amend their restrictive covenant laws to, among other things, ban covenants not to compete for workers under a certain wage threshold. Other states that similarly enacted or amended their restrictive covenant laws to include low-wage restrictions, include Maine, Maryland, Massachusetts, New Hampshire, Rhode Island, Virginia, and Washington. In January 2021, the District of Columbia took the trend a step further by enacting the Ban on Non-Compete Agreements Amendment Act of 2020, which bans virtually all noncompetes for employees in the District.
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Illinois Legislature Seeks to Limit Use of Restrictive Covenants
Two bills were recently introduced in the Illinois legislature that seek to limit or preclude the use of restrictive covenants for Illinois employers. First, on February 19, 2021, the Illinois House of Representatives introduced House Bill 3066 (accessible here ), which seeks to eliminate the use of non-competition and […]