There are several types of restrictive covenants that are recognized by New Jersey courts. Courts acknowledge the need for a business to protect customer lists, trade secrets, intellectual property and proprietary information. But courts also recognize that people should be able to work. Consequently, courts often view improperly drafted restrictive covenants as a restraint of trade.
Experienced New Jersey restrictive covenant attorneys can assist companies in preparing restrictive covenants that are enforceable by a court of law.
Employers frequently use non-compete agreements, also known as non-competition agreements, throughout New Jersey. Employers ask salespeople, medical professionals and senior executives to sign non-compete agreements.
These agreements restrict a departing employee from working for competitors of their former employer. However, to be enforceable, non-compete agreements must meet a four-pronged test that has developed in New Jersey case law over the years:
The restriction must advance a legitimate business interest of the employer
For instance, protecting an existing customer base is a legitimate business interest of the employer. However, the law does not permit an employer to restrict the ability of the former employee to work simply to stifle competition.
The restriction must be reasonable in terms of time, geography and the type of work permitted
New Jersey courts will not enforce restrictive covenants of over two years. Therefore, if an employer wants an enforceable agreement, a minimum requirement is that the period of restriction be two years or less.
The geographical region to which the restriction applies must be reasonable. Restricting a former employee from working for a competitor within a 10- or 20-mile radius of the former employer might be reasonable; preventing the former employee from working in the State of New Jersey would probably be struck down.
The restriction cannot place an undue hardship on the former employee
While a company may protect its business, the former employee may earn a living to support herself and her family. Restricting a saleswoman from selling accounting software to manufacturing businesses, which is what she did for her former employer, might be enforceable. However, prohibiting that same saleswoman from selling patient management software to medical professionals might not pass muster.
The restriction cannot be against public policy
Enforcement of non-compete agreements must not result in harm to the public. In one New Jersey case, a hospital tried to enforce a restriction that prohibited a neurosurgeon from working within 30 miles of the former employer. However, a court reduced the 30-mile restriction to 13 because of the shortage of neurosurgeons in that part of the state.
In the neurosurgeon’s example above, the court did not refuse to enforce the entire non-compete agreement. Rather, the court modified the non-compete agreement (“blue- penciling”) by reducing the 30-mile restricted area to 13.
Many times, New Jersey judges will blue-pencil restrictive agreements by modifying the offensive part of the agreement but otherwise leaving the agreement intact.
There are two types of non-solicitation agreements. One type prohibits former employees from soliciting customers of the former employer to become customers of the employee at his new firm.
The second type of non-solicitation agreement deals with the solicitation of current employees of the former employer to join the departed employee at his new firm.
As with all restrictive covenants, courts take a case-by-case view of resolving disputes. Therefore, a former employee cannot solicit her co-workers from the same branch office at which she worked for her former employer. But what about an employee of the former employer, who the departed employee did not know and who worked at a different branch, who gets referred to the former employee through a headhunter? In that scenario, a court might be reluctant to enforce the non-solicitation restriction against the former employee.
Non-disclosure agreements, also known as confidentiality agreements, are common in New Jersey. When signing a non-disclosure agreement, the employee agrees she will not disclose proprietary information of the company to third parties. This information could be customer lists, manufacturing processes, price lists, etc.
Non-disparagement agreements forbid employees from making negative comments about their employer (even if they are true). Companies often use non-disparagement agreements in severance agreements. The employer almost always drafts these.
Trade Secret Agreements
Companies that develop new products and technologies, such as pharmaceutical and technology companies, require employees to sign trade secret agreements. These agreements prohibit employees from disclosing to third parties the details of new products, technology or intellectual property on which the former employee may have worked.
Enforcement of Restrictive Covenants
Depending on the actions of the employee and the restrictive covenant, an employer can send a “cease and desist” letter to stop the prohibited activity.
However, if the cease and desist letter doesn’t work, or the company is immediately concerned about the nature of the restricted action by the former employee, the company can seek a temporary restraining order (TRO) and preliminary injunction against the employee.
Courts view such injunctive relief as an extraordinary remedy that is infrequently granted.
To succeed, the employer must show:
- The likelihood of success on the merits.;
- That, if the injunction is denied, the employer will suffer irreparable harm;
- That granting preliminary relief will not result in greater harm to the former employee;
- That the injunction would be in the public interest.
The employer has the burden of proving all four of the above elements.
Drafting an Enforceable Restrictive Covenant
As can be seen from the above, courts will not automatically enforce the terms of a restrictive covenant that does not conform to established New Jersey case law. It is important, therefore, that employers who want to use non-compete or non-solicitation agreements have properly drafted agreements on hand.
As an aside, restrictive covenants typically require the departing employee to disclose to their new employer the existence of the restrictive covenant. Notwithstanding that, it is a good practice for an employer to ask prospective employees if they have signed a restrictive covenant before making an offer of employment.
What if You Signed a Restrictive Covenant and You Want to Leave Your Employer Now?
You signed an employment agreement when you were first hired; you had little choice, right?
Now you want to leave and are concerned with that agreement.
As you can see from the above, courts do not blindly enforce restrictive covenants. If you are concerned about the agreement you signed when you joined your soon-to-be-former employer, talk to an experienced New Jersey restrictive covenant lawyer.
Experienced New Jersey Restrictive Covenant Attorneys
Whether you are an employer looking to enforce a restrictive covenant, or an employee who is being asked to sign an employment contract with restrictive language, consult an experienced New Jersey restrictive covenant attorney. The language and the conditions in the contract are important. Agreements with the wrong language may not be enforceable. Both employers and employees need to know that.
The experienced restrictive covenant attorneys at Schiller, Pittenger & Galvin, P.C., can help employers and employees understand their respective rights and obligations under restrictive covenants in employment agreements. Call the firm at their Scotch Plains office at 908-490-0444 or contact them here to schedule an appointment.