Understanding New Jersey Non-Compete Employment Agreements
Over the past few years, more and more employers require their employees to sign non-compete agreements as a condition of employment. Estimates suggest as much as 20% of the U.S. workforce is subject to these requirements, with 50% of private-sector employers using them on some level. Non-competes serve various purposes, from restricting future employment location to preventing employees from competing against their former companies once they leave. While non-compete agreements can be beneficial to employers, not every non-compete is enforceable. This article will discuss the various elements of a non-compete agreement and what makes them enforceable in New Jersey.
Benefits of a Non-Compete
As touched upon above, non-compete agreements provide various benefits to employers, from restricting future employment to protecting trade secrets. More specifically, non-complete clauses or agreements, also known as restrictive covenants, can protect businesses against lost profits and prevent disclosing trade secrets or customer lists that could be commercially harmful to an employer if they were revealed to competitors. These types of restrictions also protect from unfair competition by former employees who have current access to sensitive information about customers, vendors, operations, and strategies that give them an advantage over other potential employers when looking for new jobs.
By restricting a former employee from working for a competitor in the same industry or taking another job within a specific geographical region, employers can:
Protect their trade secrets and sensitive information by preventing former employees from taking their knowledge and skills to competitors.
Protect the company’s intellectual property.
Prevent ex-employees from poaching clients or staff members.
Examples of Non-Compete Clauses
Non-compete clauses/agreements can be drafted in a variety of ways. For example, they can be limited to a specific geographic region or industry. They can also include language that prohibits the employee from working in a competitive field for an agreed-upon length of time following termination of employment.
Below are some generic sample clauses. Please note that these samples are for reference only and should not be used in place of state-specific clauses drafted by an attorney.
Example 1: During the Employment Period and for a period of two years after the Date of Termination, Executive will not, directly or indirectly, within a fifty-mile radius of any office of employer (or a consolidated subsidiary) in existence on the Date of Termination, own, manage, be employed by, work for, consult for, be an officer or director of, advise, represent, engage in or carry on any business which competes with the business of employer. During the Employment Period and for a period of two years after the Date of Termination, Executive will not, directly or indirectly, solicit or induce, or attempt to solicit or induce, any employee of the employer (or a consolidated subsidiary) to leave the employer (or a consolidated subsidiary) for any reason whatsoever, or solicit the services of any employee of the employer (or a consolidated subsidiary).
Example 2: During the terms of Consultant’s engagement and for a period of six (6) months immediately following the termination or expiration of its engagement, Consultant shall not directly or indirectly (i) carry on any business or activity that competes directly or indirectly with the company for a radius of fifty (50) miles from the present location of the Company in Austin, Texas, (ii) solicit or induce any employee or consultant of the company to quit their employment or cease doing business with the company, or (iii) solicit any actual or potential customer of the company for any business that competes directly or indirectly with the company, unless Consultant is specifically authorized to do (i), (ii) or (iii) with the prior written consent of the company. Consultant acknowledges that the restrictions set forth in this Section 4 are reasonable and necessary for the proper fulfillment of its consulting obligations.
Non-Compete Agreement Requirements and Enforceability
In New Jersey, there is no law prohibiting non-compete agreements between employers and employees. However, non-compete clauses and agreements must meet specific New Jersey law requirements to be considered valid and enforceable. Under New Jersey law, non-compete agreements are only enforceable if they are reasonable with respect to the restrictions imposed on employees; however, what is deemed reasonable will vary depending upon each individual situation.
In New Jersey, there is no law prohibiting non-compete agreements between employers and employees. However, non-compete clauses and agreements must meet specific New Jersey law requirements to be considered valid and enforceable.
More specifically, New Jersey law states that a non-compete agreement is valid so long as it does not:
Unreasonably limit employment or economic opportunities.
Lessen competition to the detriment of the public interest.
Impose unreasonable limitations on the type of work available to such a person.
Otherwise, contrary to public policy.
If a non-compete clause is deemed unenforceable, New Jersey Courts can modify or “blue pencil” the agreement, remedying any unenforceable provisions. Solari Industries v. Malady, 55 NJ 571, 585 (1970); see also e.g., Karlin v. Weinberg, 77 NJ 408 (1978); Ingersoll-Rand Co. v. Ciavatta, 110 NJ 609 (1988); Community Hospital Group v. More, 183 N.J. 36 (2005). However, the courts will only modify the agreement to make it enforceable if the modification does not harm or hinder any interest protected by the non-compete clause.
The courts in New Jersey have a history of upholding clauses that are unambiguous on their face. Thus, employers should ensure that their non-compete agreements are clear, unambiguous, and written in plain language instead of confusing legalese.
New Jersey courts have held that the employer doesn’t need to prove actual financial or economic harm to enforce a valid, enforceable restrictive covenant.
In New Jersey, whether an employee breached his/her agreement by competing with his former company will be determined by evaluating the following factors:
Whether a competitive business existed.
Whether there was an express or implied agreement between the employer and employee concerning competition.
Which party decided to leave, i.e., voluntarily resigned or involuntarily terminated from employment.
What is reasonable as far as time and place restrictions.
Summary
The best way to protect your business is by creating a non-compete agreement that protects both your and the employee’s interest while simultaneously being fair and reasonable when considering what it means for an employee to move from one job or company to another. Hiring an experienced business and contract lawyer will ensure that any agreements put in place are enforceable under New Jersey law so that they do not get thrown out before ever having a chance to protect your interests.
At the Law Offices of Peter J. Lamont, we have been representing businesses and employers in all aspects of business, contract, and employment law for over 18 years. Contact us today to learn more about how we can help you with your non-compete agreement needs.
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