Will a New Jersey Court Enforce the Non-Compete in Your Employment Contract?

The impact of non-compete agreements increases when jobs are scarce and business competition is intense. A non-compete clause in an employment contract or severance agreement can serve a legitimate function, such as providing a company breathing room to hire and train new employees. We often receive inquiries from employees about the enforceability of a non-compete clause in their employment contract or separation agreement.

Many times employers use these documents to overreach by imposing unreasonable geographic and time restrictions that effectively prevent an employee from continuing in his or her chosen occupation. Although non-compete covenants may be enforceable, there are limits that prevent unreasonable burdens on employees based on their scope.

Criteria used to evaluate enforceability of a covenant not to compete

As a general rule, non-compete provisions are viewed unfavorably by New Jersey courts because of their tendency to interfere with an employee’s ability to use his or her training, education and experience to continue in a chosen occupation. While the right of an employer to enforce a non-compete contract turns on the specific terms of the agreement and surrounding circumstances, our attorneys have some insight into the factors considered by a court.

There are essentially three requirements that must be met for a non-compete to be upheld:

• It safeguards the legitimate interest of the employer
• The provision does not create an undue hardship for the employee
• Enforcement does not create an undue hardship for the public

While a range of employer interests may constitute a legitimate basis for a non-compete clause, those that are upheld most often include attempts to protect trade secrets and other intellectual property. Employers typically are not permitted to use the protections of a non-compete clause simply to limit legitimate competition.

New Jersey courts evaluating the impact of a non-compete on an employee tend to consider the likelihood that the employee will be able to secure alternative employment in one’s occupation. The probability that a court will find a non-compete unenforceable will also depend on whether an employee was subject to involuntary termination without cause.

The court will also consider the impact on the public from enforcement of the provision, based on access to professionals in the geographical region.

Courts look at the duration and geographical coverage of a non-compete agreement to determine if the provision is reasonable and enforceable. When these employment agreement provisions extend beyond two years or geographically beyond where the company actually engages in business, there is an increased chance the non-compete will not be enforced.

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