An employment agreement from a national chain of sandwich shops includes a non-competition clause that purports to impose remarkably broad restrictions on employees, according to a story in the Huffington Post. This type of clause typically states that an employee may not accept employment with the employer’s competitors while still working for the employer, or for a period of time after their employment ends. The clause was reportedly included in employment agreements for relatively low-level employees, which seems unusual because non-competition agreements are usually used for employees who gain a substantial amount of knowledge about the employer’s operations. Most states allow employers to enforce non-competition agreements in some circumstances, although the details vary from state to state. The general policy of New Jersey is that employers do not have a “legitimate interest in preventing competition” by former employees, Whitmyer Bros., Inc. v. Doyle, 58 N.J. 25, 33 (1971), unless the employer can show some risk to proprietary information.
A typical non-competition, or “non-compete,” agreement may state that an employee cannot work for a competitor while he or she works for the employer, or for a specific period of time after his or her employment ends. To be enforceable as a general rule, a non-compete agreement must specifically identify the type of employment, or employer, that is prohibited. It must have reasonable geographic restrictions, such as within a limited radius of the employer’s location. It must also have a reasonable duration, such as six months or one year. New Jersey imposes additional restrictions on non-compete agreements, as do some other states.
The Huffington Post story involves an employment agreement produced by an employee of the sandwich chain Jimmy John’s in a Fair Labor Standards Act (FLSA) lawsuit. Brunner v. Jimmy John’s Enterprises, Inc., et al, No. 1:14-cv-05509, 1st am. complaint (N.D. Ill., Sep. 19, 2014). The agreement includes a provision prohibiting the employee from working for a competitor, defined as a business that obtains at least 10 percent of its revenue from the sale of various types of sandwiches. Id. at Exhibit A at 3. The non-compete clause has a duration of two years after the end of employment with Jimmy John’s, and it applies to any competing business located within a three-mile radius of any Jimmy John’s store.
Such a broad non-compete agreement would probably be unenforceable under New Jersey law, which only grudgingly began to allow them a few decades ago. The New Jersey Supreme Court has established a three-part test, known as the Solari/Whitmyer test, which holds that a non-compete clause is enforceable if it protects the employer’s “legitimate interests,” it does not impose “undue hardship” on the employee, and it is not “injurious to the public.” Maw v. Adv. Clinical Communications, 846 A.2d 604 (N.J. 2004); citing Solari Industries, Inc. v. Malady, 264 A.2d 53 (N.J. 1970), and Whitmyer, 58 N.J. at 32-33. Courts have generally limited employers’ “legitimate interests” in this area to those affecting their “trade secrets and confidential information,” Ingersoll-Rand Co. v. Ciavatta, 110 N.J. 609, 635 (1988), but it makes such determinations on a case-by-case basis. Pierson v. Medical Health Centers, 869 A.2d 901, 904 (N.J. 2005).
If you are dealing with a non-compete agreement in New Jersey or New York, and you would like to consult with a knowledgeable and experienced advocate, please contact the Resnick Law Group online, at 973-781-1204, or at 646-867-7997.
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