Non-Competition Agreements
While New Jersey law is generally an "employment at will" state, and protects an employee's right to seek a livelihood, our Courts
have recognized that, under appropriate circumstances, agreements not to compete (also known as "restrictive covenants" may be
enforced against an employee.  The agreement must be reasonable under the circumstances.  In determining whether an
agreement is reasonable, courts consider various factors, including: (1) the employer's legitimate interest; (2)  hardship on the
employee; (3) scope and duration of the restriction; (4) harm to the public and (5) consideration.

Employer's Legitimate Interest   

Our courts have held that employers do not have a legitimate interest in preventing competition.  In contrast, an employer does
have a legitimate interest in protecting its trade secrets.  Several factors are considered when deciding whether information is truly
a "trade secret," including:
 
  1. the extent to which the information is known outside the business;
  2. the extent to which the information is known by employees and others involved in the business;
  3. the extent to which the owner took efforts to protect the information from disclosure;
  4. the value of the information to the business and its competitors;
  5. the effort and resources used to develop the information;
  6. the relative ease or difficulty for others to duplicate the information.

Employers may also have a legitimate interest in protecting their customer lists and relationships.  Therefore, under appropriate
circumstances, an employer may prohibit an employee from soliciting customers, particularly if the employer paid the employee to
develop and maintain those relationships on the employer's behalf.

In addition, an agreement that simply protects matters of general knowledge in the industry is unenforceable.  An employer also
cannot prevent an employee from using skills or expertise that he or she acquired during the course of employment.  Our courts
have held, however, that there may be times where an employer has a legitimate interest in preventing an employee from using  
specialized knowledge that he or she acquired during employment.  Our courts have recognized that it is often difficult to
precisely define this kind of specialized knowledge, and that employers bear a heavy burden in protecting this:

    We recognize that employers may have legitimate interests in protecting information that is not a trade secret orproprietary
    information, but highly specialized, current information not generally known in the industry, created andstimulatedby the
    researchenvironmentfurnished by the employer, to which the employee has been "exposed" and "enriched" solely due to
    his employment.  We do not attempt to define the exact parameters of that protectable interest  We expect courts to
    narrowly construe this interest, which will be deemed part of the "reasonableness" equation.  The line between such
    information, trade secrets, and the general skills and knowledge of a highly sophisticated employee will be very difficult to
    draw and the employer will have the burden to do so.

Ingersoll Rand Co. v. Ciavatta, 110 N.J. 608, 638 (1988).

Employee's Undue Hardship

Any restrictive covenant imposes some hardship on employees, as it limits their ability to find alternate employment.  To that end,
courts are less likely to enforce a restrictive covenant if the employee voluntarily resigned.  The New Jersey Supreme Court has
recognized:

    Where [the termination] occurs because of a breach of the employment contract by the employer, or because of actions by
    the employer detrimental to the public interest, enforcement of the covenant may cause hardship on the employee which
    may fairly be characterized as "undue" in that the employee has not, by his conduct,contributedto it.  On the other hand,
    wherethe breach results from the desire of an employee to end his relationship with his employerrather than from any
    wrongdoing by the employer, a court should be hesitant to find undue hardship on the employee, he in effect having
    brought that hardship on himself.

Karlin v. Weinberg, 77 N.. 408, 423-24 (1978).


Scope and Duration

The restriction must also be reasonable in terms of both the geographic scope and the time limitation; an unreasonable restriction
does not protect an employer's legitimate interest and imposes an undue hardship on an employee.  For example, courts have
found that a five year restriction is unreasonable, but a one year restriction on solicitation of customers in a few counties was
reasonable, as it protects the employer's legitimate interest in its customer lists, and did not impose an undue difficulty for an
employee to find another job.  Similarly, courts have enforced one year and two a two year restriction on soliciting existing
customers.

If the time or geographic scope is overbroad, but the agreement is otherwise enforceable, courts may "blue pencil" the
agreement.  Under the "blue pencil" doctrine, the court may essentially "re-write" the scope so that the time duration and/or
geographic restriction protects the employer's legitimate business interest, without imposing an undue hardship on the employee.   
Employers should be cautious, however, of intentionally drafting burdensome agreements, with the hope that, if it is
unenforceable, a court will nevertheless enforce a less onerous restriction.  Our Supreme Court has cautioned:

    When an employer, through superior bargaining power, extracts adeliberatelyunreasonable and oppressive non-
    competitivecovenanthe is in no just position to seek, and should not received, equitable relief from the courts.

Solari Industries, Inc. v. Malady, 55 N.J. 571, 576 (1970).

Harm to the Public

Our courts have recognized that, in addition to the interests of employers and employees, restrictive covenants might also impact
the public by limiting access to competing goods and services.  For example, our courts have refused to enforce agreements
restricting an attorney's ability to practice law, reasoning that a client should have the right to select an attorney of their choice.  
This prohibition applies to both attorneys in private practice as well as in-house counsel.  
See, e.g., Jacob v. Norris, McLaughlin
& Marcus
, 128 N.J. 10 (1992); N.J. Supreme Court Advisory Committee on Professional Ethics, Restrictive Covenants for In-
House Counsel
, N.J. Ethics Opinion 708 (2006).

Our courts, however, have not applied the same reasoning to non-competition agreements involving physicians and other
healthcare providers.  Thus, courts have enforced restrictive covenants limiting physicians from practicing in a certain community
for a period after selling their practices, finding that there is a legitimate interest in protecting relationships with patients.  Courts
have similarly enforced post-employment agreements, limiting physicians from practicing in limited geographic areas.

Consideration

All agreements should be supported by consideration; that is, both parties should give something of value as an inducement or
"quid pro quo" to enter into the agreement.  For non-competition agreements, it may seem as though the employee is giving up
rights, and that the employer has given nothing in return.

Our courts have held, however, that an offer of employment is sufficient consideration, and that an employer does not need to
pay anything in addition as part of the consideration for the non-competition agreement.  Sometimes, employers do not insist on
non-competition agreements upon hire, but later decide to insist that an employee sign such an agreement.  Our courts have held
that these later agreements are also enforceable, reasoning that the employer's decision not to fire the employee was sufficient
consideration.



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urie Law Firm LLC represents employees and employers throughout Northern New Jersey and Central New Jersey, including  Montclair,
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urie Law Firm LLC.  All rights reserved.