When many employers hire an employee that will have access to valuable internal information, they ask them to sign a noncompete agreement. Noncompetes (also known as restrictive covenants), offer an excellent means of protecting the financial interests of the business, if done right. However, if the court does not later uphold the noncompete because it is invalid, it does the business no good. As a result, it is important for business owners to have a basic understanding of the law regarding noncompetes in New Jersey in order to avoid this problem.
Are noncompetes enforceable?
In general, noncompetes are enforceable in New Jersey, if they are reasonable in scope and duration. Since New Jersey law disfavors restraints on trade, the court will narrowly construe the agreement. In order for an employer to prove that the noncompete is reasonable, it has the burden of proving all of the following:
• The agreement is necessary to protect a parties’ legitimate interest (e.g. trade secrets, confidential or proprietary information, or customer relationships).
• The agreement does not cause undue hardship on the former employee. This means that the agreement must be reasonable in its scope, duration and geographic area. What is “reasonable” depends largely on the facts of the case.
• The agreement is not against the public’s interest. To determine whether an agreement is within the public’s interest, the court will consider whether the agreement adequately balances the right of the public to freely access goods and services within the industry with the employer’s right to protect its interests.
Are noncompetes enforceable if the employer terminates the employee?
In general, a noncompete is enforceable in New Jersey, even if the employer fires the employee. However, a noncompete may be unenforceable if the termination conflicts with the terms of the agreement. Additionally, the court may consider the reasons for the termination in deciding whether, and to what extent, to enforce the noncompete.
What remedies are available to the employer?
As far as monetary damages are concerned, in employment litigation, employers may only recover damages that were foreseeable at the time the noncompete was entered into. These damages include, but are not limited to, lost profits and recruiting and training costs.
Alternatively, the employer may seek an injunctive relief, in which the court orders the former employee to essentially stop breaching the noncompete agreement under penalty of contempt of court. However, this type of relief may only be sought if the employer can prove that it would be irreparably harmed by the breach. Under the law, this has been interpreted to mean that monetary damages would inadequately compensate the employer. This may be true in cases where the employee had access to the employer’s trade secrets and would likely reveal or use them in his or her new position, for example.
Consult an attorney
When hiring an employee that will have access to sensitive information, it is important for employers to have an enforceable noncompete agreement in place to protect the interests of their businesses. However, doing so requires a consideration of many complicated factors that are specific to the surrounding circumstances. An experienced business law attorney can ensure that these factors are considered and are reflected in an agreement that is reasonable and enforceable.