The relationship between an employer and an employee is not nearly as simple as an exchange of labor for wages. It involves a complicated set of interests that frequently come into conflict with one another. Employees often gain valuable skills and information during the course of their employment with a particular business, and any business has an interest in preventing competition. Some employers require their employees to sign an agreement restricting their ability to work for a competitor during or after their term of employment. This could be a separate agreement or a clause in an employment contract. While this sort of agreement clearly benefits an employer, employees need to be able to earn a living in their field. New Jersey courts strictly limit the enforceability of non-competition agreements, sometimes called “non-competes.”
Known as a “restrictive covenant” in formal legal terms, a typical non-compete states that an employee may not accept employment from any competitor of the employer, typically within a defined geographic area and for a defined period of time. Employers may be able to obtain injunctive relief and monetary damages against a former employee who violates a non-compete. While non-competes have long appeared in employment contracts for jobs that involve high levels of education, training, or experience, they are reportedly becoming more common in a much wider range of jobs—including sandwich makers and summer camp counselors. As non-competes have become more common, so has litigation challenging their enforceability.
As of the summer of 2015, only four states have enacted statutes banning or severely limiting non-competes. See Cal. Bus. & Prof. Code § 16600; Haw. Rev. Stat. § 480-4(d) (as amended by H.B. 1090, eff. Jul. 1, 2015); N.D. Cent. Code § 9-08-06; 15 Okla. Stat § 15-219A. New Jersey has no statute dealing with the issue, but New Jersey courts have established a set of criteria for determining whether a non-compete is enforceable. Courts will only enforce a non-compete if, first and foremost, it limits the ban on competition to a reasonable geographic area for a reasonable time period. Community Hosp. Group, Inc. v. More, 869 A.2d 884 (N.J. 2005); Solari Industry v. Malady, 264 A.2d 53, 56 (N.J. 1970); Whitmyer Bros., Inc. v. Doyle, 274 A.2d 577 (1971).
New Jersey law regarding non-competes attempts to balance an employer’s legitimate interests in preventing competition with an employee’s right to work in their field—and their need to work to support themselves and their families. An employer’s legitimate interests in this regard, according to New Jersey courts, include protecting trade secrets, maintaining customer relationships and other business goodwill, and protecting other confidential or proprietary business information. Coskey’s Television & Radio Sales & Serv., Inc. v. Foti, 602 A.2d 789, 794 (N.J. App. 1992).
The three-part test for determining whether a non-compete is enforceable is sometimes known as the Solari/Whitmyer test. It states that a non-compete is enforceable if it:
1. is “necessary to protect the employer’s legitimate interests”;
2. does not “cause undue hardship to the employee”; and
3. would not be “injurious to the public.” Community Hosp., 869 A.2d at 897.
Courts have the authority to declare a non-compete void if it does not meet this standard. It can also modify the clause, such as to place greater limits on its scope, if it is reasonable to do so See Solari, 264 A.2d at 61.
If you need to speak to an employment law attorney in New Jersey or New York, contact the Resnick Law Group today through our website, at 973-781-1204, or at 646-867-7997.
More Blog Posts:
Updated LinkedIn Profile Leads to Claim for Alleged Breach of Non-Compete Agreement, The New Jersey Employment Law Firm Blog, February 27, 2015
Sandwich Chain Reportedly Requiring Employees to Sign Non-Competition Agreements, The New Jersey Employment Law Firm Blog, November 12, 2014
Non-Solicitation Agreement Not Violated by Former Employee’s Facebook Posts, Court Rules, The New Jersey Employment Law Firm Blog, April 5, 2013