Employers view non-compete agreements as essential tools to protect their businesses. Employees who sign non-compete agreements should be careful about the limits of such agreements, as they are likely to impact future employment opportunities.
Court Enforcement. New Jersey courts enforce non-compete agreements if they are reasonable. This means that the non-compete should only be broad enough to protect the legitimate interests of the employer, should impose no undue hardship on the employee, and should not harm the public generally.
Employer's Legitimate Interest
Employer's Legitimate Interest. For example, while the employer has no legitimate interest in preventing competition (which is contrary to New Jersey public policy), the employer does have a legitimate interest in protecting confidential information and customer lists. Therefore, it is not unreasonable for the employer to restrict former employees from soliciting the employer's customers.
Duration and Services Covered
Duration and Services Covered. The duration and breadth of a non-compete restriction must be reasonable. This applies not only to the products and services that are covered by the non-compete agreement, but to the territory covered. Generally, the territory covered by a non-compete agreement should not be greater than the area covered by the business. One year non-compete agreements are fairly common; two year agreements are also found, but may be unreasonably long depending on the particular circumstances; and seldom is an agreement longer than two years reasonable.
The Employee's Perspective
The Employee's Perspective. Courts examine reasonableness not only from the perspective of the employer, but from the perspective of the employee. The courts look to see if the non-compete is creating undue hardship -- and they focus on the likelihood that the employee can find work in his field elsewhere and the reasons for the termination of the employment relationship. The broader the geographic area of restriction and the longer the non-compete is to apply, the greater the potential hindrance of future employment. But courts also review the circumstances of termination to see if the employer has acted wrongly in terminating the employee, if the employee simply desired to seek new employment or if some other reason is involved. It is not uncommon to see non-compete agreements in at-will employment situations, as courts generally see the employer's offer of employment or continued employment to be sufficient consideration to support the post-employment non-compete restriction.
Blue Pencil Rule
Blue Pencil Rule. What if the non-compete is drafted too restrictively or too aggressively in favor of the employer? New Jersey applies a "blue pencil" rule to permit partial enforcement of the non-compete to the extent it is reasonable. However, if the employer, through superior bargaining power imposes deliberately unreasonable and oppressive restrictions, the courts may conclude that the employer has no equitable right to benefit by partial enforcement.
Practical Considerations. Still, a legal analysis of non-compete agreements may not solve practical issues of employment. For example, if an employer has an overly broad non-compete that the employee is asked to sign in order to get the job, it is little comfort to imagine that the non-compete might not be enforceable if the job does not work out. Likewise, when one is looking for a new job and is asked if a non-compete exists with a current or former employer, the potential new employer may not be willing to go through the detailed analysis of enforceability, take on the new employee and risk a lawsuit for business interference from the former employer. The key is to go into every situation with eyes open. Study the non-compete carefully. Consider its consequences. Ask questions. Seek the advice of counsel. Assess whether you have the bargaining power to seek adjustments. If you are an employer, insure that it is part of your standard practice to ask potential employees if they have non-compete agreements with current or former employers and to ask for a copy (as long as the potential employee can turn it over without violating a non-disclosure restriction). This at least insures that you are aware of restrictions that might apply upon hire and might allow you to adjust a new employee's position to avoid running afoul of a former employer's non-compete agreement.
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