Noncompete Agreements Can Be Challenged in New Jersey

It’s understandable that companies want to keep trade secrets out of the hands of their competitors, which is why many employers require employees to sign noncompete contracts. Employers fear that when an engineer, salesperson, executive or marketer leaves the company to work for a competitor, the new employer will benefit from the new employee’s knowledge of the former employer’s business.

Noncompete contracts, however, can unreasonably restrict employees’ future job opportunities. New Jersey, along with many other states, is now considering legislation that would limit employers’ rights to impose and enforce such agreements. The state makes the argument that such legislation would lower the unemployment rate and reduce requests for unemployment benefits.

The New Jersey Legislature has not yet voted on legislation to curb noncompete agreements, so employees remain vulnerable to the adverse effects of these contracts. The noncompete provisions that employees should be particularly wary of include:

• Definition of competitor — The noncompete agreement may contain an overly broad definition of the types of companies that constitute competitors. If, for example, the agreement states that any company involved in systems engineering is a competitor, it would be nearly impossible for a systems engineer to take a job that doesn’t violate the contract.

• Limited job market — For professionals with highly specialized skills, there may be only an extremely limited number of employers that need those skills. Often, those employers are competitors.

• Geographical reach — The noncompete agreement may contain no geographical limitation or an overly broad one. If the contract bars an employee from jumping to a competitor in the same market area, a court might find the limitation to be reasonable. But if the agreement prevents the employee from working for a similar company anywhere in the United States, a court will be more inclined to find the restriction to be unreasonable.

Noncompete agreements are enforceable only when they protect legitimate employer interests and do not create an unfair hardship on employees. If your employer asks you to sign a noncompete agreement, you should have an attorney review it first. And if your former employer is accusing you of breaching a noncompete contract, you need to mount a strong defense. Speak with an employment law attorney to determine your legal options.