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Richard J. Lambert was named by Best Lawyers® as a 2021 Corporate Law “Lawyer of the Year.”

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New Jersey tries to limit non-competes after rise in litigation

Through the course of business, New Jersey employees are given access to all sorts of information about the company they work for. They are privy to information about who customers are, what prices are, what the company costs are and how products are made. This information can be valuable to the company’s competitors should the employees leave the company or decide to start a company of their own. Using this information could be considered unfair competition and hurt the employee’s former employer.

In order to prevent these types of issues, many employers are requiring employees to sign a noncompete agreement. A noncompete agreement prevents an employee from working for a company rival or starting their own competing business for a certain amount of time following their employment. Therefore, even though an employee no longer works for a company, that company still dictates, to a degree, where that employee can work.

New data shows that these noncompete agreements are getting litigated more than ever. This specific type of business litigation has seen an increase of about 61 percent since 2002. Last year, there were 760 reported cases of litigation over noncompete agreements. Experts say there are likely many more cases, but they likely settle off the record and, therefore, are not officially recorded.

In response to this increase, New Jersey legislatures have introduced legislation that would limit the scope of noncompete agreements. This is because they have a limiting effect on start-up companies and make it difficult for certain employees to find work.

New Jersey businesses need to understand the rights that they have when their employees have signed a noncompete agreement. These agreements can be invaluable tools in protecting trade secrets. However, New Jersey businesses also need to be aware of the limits that noncompete agreements can have — especially when it comes to hiring new employees.

Source: The Wall Street Journal, “Litigation Over Noncompete Clauses Is Rising,” Ruth Simon and Angus Loten, Aug. 14, 2013

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