Restrictive Covenants and Non-Compete Agreements

Employment agreements often contain clauses designed to protect the business’s interests by limiting an employee’s conduct. These types of clauses, known as restrictive covenants, are increasing in popularity, as more employers are using them to protect their assets, including intellectual property, client lists, and trade secrets.

While these are valid concerns for companies who do not wish to lose business to their competitors, the agreements can also be too restrictive. New Jersey Courts will analyze these clauses carefully. The clauses must meet certain criteria in order to be enforceable, so it is important to review agreements with an experienced Atlantic County employment lawyer at Levine, Staller, Sklar, Chan & Brown, P.A.

Non-Compete Agreements

The most common type of restrictive covenant is a non-competition (or non-compete) agreement. Under a non-compete agreement, the employee forfeits the right to work for or start a business in the same field as their current employer after their employment has ended. The agreement must specify a time period and a geographic area to which the restriction applies, and it may also include examples of companies that would qualify as a competitor.

Because they are being asked to give something up, the employee must receive something of value in return for signing a non-competition agreement. If the agreement is signed at the beginning of an employee’s tenure, the job itself may satisfy this requirement. If an employee is already working when they are asked to sign, however, they must receive something in addition, such as a bonus or a promotion.

Enforcing a Non-Compete Agreement

Generally, New Jersey Courts will carefully scrutinize non-compete agreements to ensure that they are not overly broad. Such agreements must be narrowly drafted to balance the competing interests between the employer’s legitimate business interests and the employee’s right to continued work in their chosen profession.

In order to be enforceable in the state of New Jersey, a non-compete agreement must:

Protect the legitimate business interests of the employer: This first condition is straightforward. Employees who spend time learning confidential information and forging relationships with customers can damage the company by bringing these assets elsewhere. The employer must be specific in its reasoning; preventing competition in general is not a legitimate business interest.

Not impose undue hardship on the employee: The second condition applies to the scope of the agreement. Non-compete agreements must strike a balance between protecting the business and allowing the employee to earn a living in their chosen career. In New Jersey, the employee’s right to work takes precedence, so the employer must prove that their terms are reasonable.

The length of the restriction and the geographic area must directly correlate to the business, and restricted businesses must be in the same line of work. For example, if a person is leaving a company that manufactures coffee roasting equipment, they cannot be barred from working for any other type of food equipment company.

Be in the public’s interest: This third condition involves the agreement’s overall impact on the community. If the agreement is deemed injurious to the public in some way, or in violation of a public policy, it will not be enforceable.

Generally, this applies in cases when the restrictions would deprive the public of a good or service. For example, a non-compete agreement for a healthcare provider may not be enforceable if the public has limited or no access to specialists in their practice area.

Even if a Court finds that the non-compete agreement is too broad, it has the power to re-write the agreement, to reduce its scope.

Other Restrictive Covenants

There are other types of restrictive covenants that employees may be asked to sign, including:

  • Non-solicitation: The employee agrees not to solicit the company’s clients for a certain period
  • Non-recruitment: The employee agrees not to approach the company’s other employees with job offers at their new place of business
  • Confidentiality and non-disclosure: The employee agrees not to disclose certain types of proprietary information, such as business plans, client lists, trade secrets, product designs, and pricing models, both during and after their employment

These are subject to the same standards as non-compete agreements. If they meet the necessary criteria, a Court may uphold them.

Employers who believe that a restrictive covenant has been breached may pursue legal action against the employee, either to force them to stop what they are doing or to recover damages.

New Jersey state laws provide protection for employees against unreasonable restrictive covenants. However, each agreement is different, and having an experienced Atlantic County employment lawyer by your side is the best way to ensure that your rights are protected, both when the agreement is drafted and when it goes into effect.

Atlantic County Employment Lawyers at Levine, Staller Fight for Employees Facing Unreasonable Restrictive Covenants

The Atlantic County employment lawyers at Levine, Staller, Sklar, Chan & Brown, P.A. provide comprehensive representation to employees dealing with restrictive covenants. We will thoroughly review the facts of your case to determine if your agreement is enforceable, and prepare a sound legal strategy to get you the best possible outcome. With offices conveniently located in Atlantic City, we help employees throughout Atlantic County, Cape May County, and Ocean County. Call us today at 609-348-1300 or contact us online for a free consultation.

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