Non-Compete Agreements

A NON-COMPETE AGREEMENT (a.k.a. restrictive covenant) in the employment context is a promise by an employee not to compete with his/her employer after the employment ends. This can be embodied within a broad employment agreement or be the only provision in a stand-alone agreement. Because non-compete agreements, by their very nature, restrain trade and negatively impact an employee’s ability to find subsequent employment, people are often under the false impression that such agreements are “illegal” or unenforceable.

As a general rule, they are legal and enforceable, provided that they are reasonable under the circumstances. A restrictive covenant is reasonable if it protects the legitimate interests of the employer, imposes no undue hardship on the employee, and is not injurious to the public. Furthermore, courts have the power to reform (i.e., modify) a restrictive covenant so that it is “reasonable” under the circumstances

Legitimate Interest
Legitimate interests of an employer include the preservation of customer relationships, trade secrets and confidential information. The mere desire to prevent an employee from future employment is not a legitimate interest.

Undue Hardship
A restrictive covenant will almost always impose some degree of hardship upon the employee. However, courts may enforce the covenant unless the hardship is undue. Courts will consider a number of factors when deciding whether a hardship is undue, including the impact on the employee’s ability to earn a livelihood, the geographic range of the limitation, and the duration of the restriction.

Injury to Public Interest
A restrictive covenant may be deemed to injure public interest if it deprives the public of vital services or creates monopolistic business practices that limits the availability of goods and services.

The topic of restrictive covenants is controversial and the law of restrictive covenants is very dynamic. Numerous New Jersey cases have examined restrictive covenants, but cases are fact-sensitive and decided on a case-by-case basis. Thus, very few, if any, bright-line rules have emerged. Please contact the author if you wish to discuss this article or his practice areas.

This article is provided solely for the general interest of the reader. The article and its contents are neither intended as, nor should be construed as, legal advice or opinion. Legal advice and opinion are provided by the firm only upon engagement with respect to specific factual situations.

Barry F. Gartenberg, L.L.C.
Attorney at Law
505 Morris Avenue, 1st Floor
Springfield, New Jersey 07081