The Enforceability of Restrictive Covenants in New Jersey |
Posted: June 1, 2017 |
A non-compete agreement is an employment covenant that governs the conduct of the employee after a given stint of employment has come to an end. Specifically, an NCA can prohibit an employee from working with a competitor for a certain number of years, or can prevent the employee from competing directly with the former employer for a certain number of years. Though NCAs may seem excess from an employee point-of-view, they are rather useful from an employer point-of-view, and sometimes necessary, particularly in high-risk, client-oriented industries. Suppose, for example, that you are a small business in a new industry, and you hire someone to build your client accounts. Over the next few years, relationships are built and the business gets off the ground. If the employee then decides to leave and start their own competing business, however, it could spell doom for your business if you do not have adequate time to adapt. An NCA can stop the employee from “stealing” clients for their own business by preventing them from competing directly for a limited period of time. New Jersey NCA Enforceability New Jersey courts are rather strict about enforcing NCAs, but such covenants are enforceable if they meet certain criteria. The courts use a three-prong test to determine whether a particular NCA is reasonable (and therefore enforceable): 1) necessary to protect the employer’s legitimate interest; 2) does not cause undue hardship to the employee; and 3) does not collide with public interest. Let’s take a look at each element of the enforceability test. Employer’s Interest The NCA must protect something that the employer has a legitimate interest in protecting, such as client relationships, trade secrets, strategic information, and other confidential or high-value information. An employer cannot, for example, try to prevent an employee from competing out of spite or mere jealousy. The interest must be business-related in order to be considered legitimate. Employee Hardship The NCA cannot cause an employee to experience undue hardship. This requires a holistic assessment of various factors, including but not limited to whether the employer or the employee terminated the employment contract, the actual financial burden placed on the employee by the NCA terms, and the future prospects of the employee in the industry. Public Interest An NCA cannot interfere with legitimate public interests. This tends to be highly fact-dependent. For example, if a community lacks trained pharmacists, then an NCA which restricts a pharmacist from working in the community for a number of years likely collides with the public interest in having access to qualified pharmacists.
Contact our New Jersey attorneys for more information.
|
||||||||||||||||||
|