Business Interference and Protecting the Right to Pursue Your Livelihood
In New Jersey, the law of business interference – often called tortious interference -- begins with a simple premise: the law protects the right of a person to pursue a livelihood or a company to pursue a line of business. To advance that protection, our law states that “a person who unjustifiably interferes with the contract of another is guilty of a wrong." The law protects not only contracts that are already made, but the reasonable expectation of a future economic gain.
What Must be Proven. To prevail, a plaintiff must prove: (1) that he has a protectable right – either an existing contract or a prospective, reasonably expected economic right; (2) that the defendant knew of the agreement or expectation of gain and acted intentionally and with malice – that is, without justification or excuse; if the defendant did not act out of sheer malice, but for profit, one must show conduct that went beyond generally accepted “rules of the game:" (3) that the defendant was not a party to the contract interfered with; and (4) that the interference caused an actual loss or the loss of the reasonably expected gain.
What is Malice? The most difficult aspect of these elements is the one dealing with malice, as it has a moral element to it. At one level, the courts will not interfere with tough competition. For example, a New Jersey court refused to find fault when a dealer and distributor of dairy products left one dairy, went to another, took away 48 customers of the first dairy by price reduction and then lost 43 of them when the first dairy undercut the second dairy’s prices. The court called this “vigorous, short-term price competition consistent with the interest of consumers." The court added that at least for competition in the same market, it would look for “fraudulent, dishonest or illegal" behavior.
A New Jersey court did find tortious interference, however, when employees of one car dealership downloaded (after hours) the computer system of the employer they were leaving, took it to the new dealership, and installed it on the new dealership’s computers.
The courts are not likely to protect a business against fierce competition. They are likely to protect against illegality, fraud and dishonesty – in means and intent. While those are broad standards, business owners and leaders can protect themselves by putting in place measures that guard their companies and business practices. Consider these ideas:
· Create confidentiality and non-compete agreements with current employees so that if they leave, they cannot take business secrets with them.
· Insure that confidential information is truly kept confidential so that only those within the company who “need to know" become involved with particularly sensitive strategic matters.
· Ask potential employees if they are subject to non-compete and non-disclosure agreements or are bound by any restrictive covenants. This will help the new employer understand any limits on the prospective employee’s work in the new business.
· Follow good business practices generally and communicate these standards to employees regularly.
· Consider developing an internal code of business ethics that can help foster the right forms of business behavior.