Restrictive Covenants For Insurance Producers: A Primer On Legal Enforceability: As States continue to diverge in their interpretation and enforcement of restrictive covenant agreements, it is now more important than ever to ensure those agreements are drafted to conform with jurisdiction-specific laws.


There are generally four main categories of restrictive covenants to consider in employment agreements: non-compete-meaning a former employee cannot work for a competitor within a specific geographic scope and time period; non-solicitation of customers-often with a time period restriction and sometimes with a specific geographic scope; non-solicitation of employees-normally with a specific time period restriction; and non-disclosure of trade secrets or confidential information-which normally have no time limits.

Oftentimes employers doing business throughout the country enter into form restrictive covenant agreements without acknowledging the nuanced laws of each respective state. Recently, in Nuvasive v. Miles, Civ. No. 2017-0720-SG, 2018 WL 4677607 (Del. Ch. Sept. 28, 2018), a Delaware court struck down a California employer's noncompete provision under California law, despite a choice of law provision in the agreement declaring that it would be governed under Delaware law. Critically, the court relied on California law that prohibits such choice of law provisions in restrictive covenant agreements unless the employee is represented by counsel, which in this case, Miles was not. As a result, the Delaware court interpreted the noncompete provision under California law, which is significantly more restrictive than in Delaware.

Even regional businesses should consider tailoring their restrictive covenant agreements to conform with each neigh-boring states' laws. For example, restrictive covenants for insurance brokers working in New York and New Jersey are subject to different requirements to remain enforceable.


New Jersey does not have robust case law directly addressing restrictive covenants in the context of insurance brokers, but there is some guidance. In Grinspec, Inc. v. Lance, a broker was required to sign an updated restrictive covenant agreement as a condition of continued employment. A-3313-01T1, 2002 WL 32442790 (App. Div. Aug. 13, 2002), certif. denied, 178 N.J. 251 (2003). However, because the broker was terminated only four months later without any evidence of declining performance or misconduct in that timeframe, the court held there was inadequate consideration for the new agreement to be enforceable. To establish consideration in this context, the court held that the continued employment must be for a "substantial period," which will...

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