Will a New Jersey court enforce this non-compete, and what happens if it is too broad?
New Jersey enforces a post-employment restrictive covenant to the extent it is reasonable: the test is whether the covenant is necessary to protect the employer's legitimate interests, whether it would cause undue hardship to the employee, and whether it would be injurious to the public. An overbroad covenant is not void per se: on the reasonableness analysis it may be disregarded or given complete or partial enforcement. New Jersey abandoned the void-per-se rule in favour of one permitting the total or partial enforcement of noncompetitive agreements to the extent reasonable under the circumstances, so a covenant may be enforced as written or, if appropriate, as reduced in scope.
The trap
New Jersey reforms rather than voiding the whole covenant, and that cuts both ways: a court may give an overbroad covenant partial enforcement (in More it held the geographic scope excessive, capped it at thirteen miles excluding Somerset, and remanded, with injunctive relief moot and the claim limited to damages), so an employee cannot expect an overreaching covenant to fail outright, and what survives is whatever is "reasonable under the circumstances", which a drafter cannot fix in advance. The legitimate-interest prong is narrower than drafters assume: an employer has no legitimate business interest in restricting competition as such; More lists, for a physician practice, protecting confidential business information including patient lists, patient and referral bases, and investment in training. No GENERAL New Jersey non-compete statute was found in the statutes checked for this rule (the law is judge-made), but two sector statutes now forbid the covenant outright: a domestic worker's written contract may not contain a non-competition agreement limiting the worker's ability to seek compensation for domestic services after the engagement ends (§ 34:11-71(b)(2)), and a charter school's board may not require or request a restrictive covenant as a condition of employment or severance (§ 18A:36A-14a(b)); and § 10:5-12.8(c)(1) confirms in passing that other employers may still require an agreement not to compete during or after employment. Both sector prohibitions bind only the sectors they name: the domestic-worker contract duty reaches an engagement only where the work is not casual work or work of less than five hours per month, and the charter-school prohibition binds the board of trustees of a charter school, which may still enter a non-disparagement agreement with an employee.
15 authorities
The words that state the rule
We are entirely satisfied that the time is well due for the abandonment of New Jersey's void per se rule in favor of the rule which permits the total or partial enforcement of noncompetitive agreements to the extent reasonable under the circumstances.
The words that state the rule
In Solari, supra, 55 N. J. 571, we recently adopted the judicial rule that noncompetitive agreements may receive total or partial enforcement to the extent reasonable under the circumstances. However, we pointed out that while a seller’s noncompetitive covenant designed to protect the good will of the business for the buyer is freely enforceable, an employee’s covenant not to compete after the termination of his employment is not as freely enforceable because of well recognized countervailing policy considerations. 55 N. J. at 576. Nonetheless an employee’s covenant will be given effect if it is reasonable under all the circumstances of his particular case; it will generally be found to be reasonable if it “simply protects the legitimate interests of the employer, imposes no undue hardship *33 on the employee, and is not injurious to the public.” 55 N. J. at 576. The employer has no legitimate interest in preventing competition as such; the authorities generally recognize this (Blake, supra, 73 Harv. L. Rev. at 652; Corbin, supra at 100) and the underlying policy finds recent legislative expression in New Jersey’s Antitrust Act. L. 1970, c. 73; N. J. S. A. 56:9-l et seq. But the employer has a patently legitimate interest in protecting his trade secrets as well as his confidential business information and he has an equally legitimate interest in protecting his customer relationships.
The words that state the rule
The order granting the preliminary injunction below is: Beversed and the cause is remanded to the Chancery Division for further proceedings.
The words that state the rule
That test requires us to determine whether (1) the restrictive covenant was necessary to protect the employer's legitimate interests in enforcement, (2) whether it would cause undue hardship to the employee, and (3) whether it would be injurious to the public. Karlin, supra, 77 N.J. at 417 , 390 A. 2d 1161 . Depending upon the results of that analysis, the restrictive covenant may be disregarded or given complete or partial enforcement to the extent reasonable under the circumstances.
The words that state the rule
Although post-employment restrictive covenants are not viewed with favor, if under the circumstances a factual determination is made that the covenant protects the legitimate interests of the hospital, imposes no undue hardship on the physician and is not injurious to the public, it may be enforced as written or, if appropriate, as reduced in scope. Here, except for the geographic scope of coverage, the restrictive covenant was fair. Considerations of the potential adverse impact on the public dictate that the geographic scope must be reduced. Because the two-year period for the restrictive covenant has expired, JFK's request for injunctive relief is moot. JFK's claim is limited to damages, including but not limited to the loss of patients, as a result of Dr. More's departure. The judgment of the Appellate Division is affirmed in part and reversed in part. We remand to the Chancery Division for further proceedings consistent with this opinion.
The words that state the rule
JFK, like every other employer, however, does not have a legitimate business interest in restricting competition.
The words that state the rule
We conclude, however, that under the circumstances of this case the geographic restrictive area is excessive and must be reduced to avoid being detrimental to the public interest.
The words that state the rule
When it is reasonable to do so, courts should not hesitate to partially enforce a restrictive covenant. Karlin, supra, 77 N.J. at 420 n. 4, 390 A. 2d 1161 . Somerset is located approximately thirteen miles from JFK and therefore is included in the restricted area. We are satisfied that if the covenant were limited to a distance less than thirteen miles so that Somerset was not within the restricted area, the covenant would not have the same adverse impact on the public that it presently has. A remand is necessary for the Chancery Division to determine the precise limits of the geographic area of the restriction, but in no event should it exceed thirteen miles or include Somerset.
The words that state the rule
Those legitimate interests may include: (1) protecting confidential business information, including patient lists; (2) protecting patient and patient referral bases; and (3) protecting investment in the training of a physician.
- statuteN.J. Stat. Ann. § 34:11-71enactment date not established
The words that state the rule
b. The written agreement required under this section shall not be construed to waive the protections of domestic workers under federal, State, and local laws and shall not contain any: (1) Mandatory pre-dispute arbitration agreement for claims made by a covered domestic worker against a domestic work hiring entity regarding the local rights of the worker; and (2) Non-disclosure agreement, or non-competition or non-disparagement agreement, limiting the ability of the covered domestic worker to seek compensation for performing domestic services after the worker ceases to receive compensation from the domestic work hiring entity for the performance of domestic services.
- statuteN.J. Stat. Ann. § 18A:36A-14aenactment date not established
The words that state the rule
Restrictive covenant means an agreement between the board of trustees of a charter school and an employee of the charter school arising out of an existing or anticipated employment relationship, or an agreement between the board and an employee with respect to severance pay, under which the employee or expected employee agrees not to engage in certain specified activities competitive with the charter school after the employment relationship has ended. b. The board of trustees of a charter school, or any employee acting on behalf of the board, shall not require or request that an employee enter into a non-disclosure agreement or restrictive covenant as a condition of employment or with respect to severance pay as provided in an employment contract.
The words that state the rule
Remanded to the Chancery Division for further proceedings in conformity with this opinion.
- statuteN.J. Stat. Ann. § 34:11-71enactment date not established
The words that state the rule
13. a. No hiring entity shall employ or engage a domestic worker, except for casual work or work of less than five hours per month, unless the engagement is governed by a written contract governing the following:
- statuteN.J. Stat. Ann. § 18A:36A-14aenactment date not established
The words that state the rule
c. Nothing in this section shall be construed to prohibit a board of trustees from entering into a non-disparagement agreement with an employee.
- statuteN.J. Stat. Ann. § 10:5-12.8enactment date not established
The words that state the rule
c. Notwithstanding any other provision of law to the contrary, this section shall not be construed to prohibit an employer from requiring an employee to sign an agreement: (1) in which the employee agrees not to enter into competition with the employer during or after employment;
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.