There are a variety of circumstances in which employers require prospective employees to sign noncompete agreements as a condition of employment. Many prospective employees – especially in this job market – fail to consider the implications of these restrictions until it is too late. Even if you are suffering from the effects of noncompete restrictions, you should know that not all restrictions are enforceable.
Although it was not always the case, it is currently the law in New Jersey that noncompete agreements are valid so long as they are reasonable. Determining what is “reasonable” is a fact-sensitive analysis requiring a review and balancing of multiple competing interests. First, the courts look to what interest the employer is seeking to protect. If the employer is seeking to protect nonpublic, confidential and sensitive business information that is neither a skill or experience the employee developed on the job nor a skill or experience the employee brought to the employer, then the employer’s interest is likely to be a legitimate one. If on the other hand the primary interest is to restrict competition, than the interest is likely to be an illegitimate one. Indeed, noncompete agreements are generally viewed unfavorably whenever they present potential restraints on trade.
Once it is determined that the interest to be protected is a legitimate one, the court will then look to see if the restrictions are overly burdensome to the employee. Thus, even if the interest to be protected is legitimate, the restrictions in the agreement must be reasonably limited in scope, geography, and time. A restaurant could not, for example, seek to protect a secret recipe by prohibiting a chef from ever working for another restaurant again. However, a hospital could restrict a neurosurgeon, who had been employed by the hospital for eight years, from working as a neurosurgeon for a period of two years within a 30-square mile area.
However, even if the first two prongs are satisfied, a restriction will still be found to be unenforceable if the burden it places on the public is too high. For example, a restriction on the same neurosurgeon in the above example would either not be enforceable or only partially enforceable where it is shown that there is a substantial lack of neurosurgeons within the affected 30-mile area. Courts would also consider the public’s interest in maintaining robust competition.
Certainly, it is highly recommended that you seek legal advice before signing a non-compete agreement. Even if you have already signed a non-compete agreement, you should still have the agreement reviewed by an attorney to determine what options are available to you. If you want a noncompete agreement, have entered into a noncompete agreement, or are considering entering into one, give us a call to make sure your interests are sufficiently protected.