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Non-compete agreements in New Jersey

Non-compete agreements are gaining popularity throughout the country, including here in New Jersey.

Non-compete agreements are generally crafted to provide employers with some level of protection. In exchange for sharing business secrets, client lists and taking the time and expense to train employees, employees are asked to sign a covenant not to compete with the employer. These agreements may stand alone or may be a provision within an employment contract. However they are used, the agreements have increased in popularity in recent years.

The growing use of non-compete agreements

The Section of Litigation within the American Bar Association, a group of legal professionals from throughout the country, recently discussed the growth of non-compete agreements. The discussion touched on how this trend is present throughout the country and approaches used by various states. Differences in enforcing these provisions range from California which generally does not enforce the agreements to Texas which takes a fairly broad and accepting approach towards enforcement. The discussion also addressed New Jersey specifically, since the state recently considered passing legislation to guide courts on how to handle these agreements.

The legislation under consideration was an act that specifically addressed non-compete agreements that impacted individuals who were eligible for unemployment compensation benefits. If passed, the law would have invalidated any covenant or contract that impacted these individuals. The bill was introduced in April of 2013 and essentially died while in committee. As a result, the state does not currently have a statute addressing how non-compete agreements should be addressed by the courts.

New Jersey law and non-compete agreements

Although a statute is not present, the courts have addressed these agreements. In precedent cases, New Jersey courts generally enforce non-compete agreements that are found to be reasonable. In Laidlaw, Inc. v. Student Transportation of America, Inc., the court stated:

Whether a restrictive covenant may be enforced depends on its reasonableness under the particular circumstances.

The court further stated that "[a]n employee’s covenant not to compete ‘will generally be found to be reasonable where it simply protects the legitimate interests of the employer, imposes no undue hardship on the employee, and is not injurious to the public.’"

However, even unreasonable provisions may be enforceable in part. In Solari Industries Inc., v. Malady, the Supreme Court of New Jersey officially abandoned a "void per se" rule for overly broad non-compete agreements. Instead, the court posed a rule that allows total or partial enforcement of the agreements to the extent they would be reasonable "under the circumstances." This allowed courts to remove provisions that were too broad and enforce portions that remained.

Non-compete agreements and legal counsel

Whether crafting, enforcing or challenging a non-compete agreement, it is wise to seek legal counsel. A non-compete agreement lawyer can guide you through the process, using information learned from precedent cases to help ensure your interests are better protected.