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Three Things That May Render a Non-Compete Agreement Invalid

May 31, 2023 Business Disputes

It is becoming increasingly common for New Jersey employers to include non-compete agreements in their employment contracts. Employers often see such agreements as a way to protect their company secrets. They also see them as a way to prevent employees, whom they have trained, from using insider knowledge in competing with them. These agreements (which can also be referred to as a “covenant not to compete”) are viewed less favorably under our state’s laws than they are in many other places. As a result, former employees may be quick to challenge the validity of an agreement with your company. The good news is twofold. First, if your employment agreement’s non-compete provisions are properly drafted, then you increase the chances of them being upheld. Second, if an employee does choose to challenge your agreement, then you are entitled to your day in Court. This article will discuss three factors that may lead to the invalidation of a non-compete agreement and steps to ensure that your agreement is valid. If you are a business owner and you need assistance with a non-compete agreement then contact our office to speak with a New Jersey business dispute attorney.

New Jersey courts will generally find a non-compete agreement to be enforceable if all of the following requirements are met:

  1. The employer has a legitimate interest which they are seeking to protect
  2. The burden that the agreement places on the employee is not unreasonable
  3. The agreement does not harm the public interest

If the Court finds that any of these three factors are in favor of the employee, then the agreement will be found invalid. We will now look at how the Court analyzes the three factors listed above and the steps you can take to help ensure that an agreement is enforceable.

Three Factors That New Jersey Courts May Use to Invalidate Non-Compete Agreements

The restriction must be in place in order to serve a legitimate need or interest of the employer.

New Jersey Courts will generally invalidate a non-compete agreement if its sole purpose is to prevent the employee from engaging in competition with their former employer. In other words, our state does not see a desire to avoid competition as a legitimate business interest. Legitimate interests, instead, will typically involve an employee being exposed to privileged or private information about the company. This can include company contact lists, company trade secrets or special processes, as well as information that is otherwise protected.

The non-compete agreement may not place an unreasonable burden on the former employee.

Non-compete agreements may not be used to broadly prohibit an individual from working in a given field. When deciding whether the burden placed on an employee is “reasonable,” the Courts will consider factors such as whether the employee would be competing directly against the employer by taking another job in the field. They will also consider geographic restrictions placed upon the employee’s ability to find work as well as the duration, after employment, of the restriction. There are other issues that the Court will consider as well when deciding whether the burden on an employee is unreasonable.

A non-compete agreement will be invalid if it harms the public interest.

Whether a non-compete agreement harms the public interest will depend heavily on the facts of a given case. Suppose, for example, a tax preparer wishes to leave his or her firm and open their own firm directly across the street. If the evidence shows that the neighborhood has no other tax preparers, and is underserved, then the Court may invalidate the agreement. Likewise, if there is already an abundance of competition, the Court may validate the agreement. It is important to remember that this is simply an example and how the Court will rule in any given situation will always depend on the facts of the case.

Steps to Ensuring that Your Non-Compete Agreements Are Enforceable

It is true that New Jersey is more limited than many other states when it comes to enforcing non-compete agreements. Fortunately, there are steps you can take to help ensure that your agreement is enforceable. These steps are discussed below.

Retain an experienced attorney to draft your non-compete agreement.

Many business owners, especially the owners of small businesses, may rely on “do it yourself” forms when preparing a non-compete agreement. It is important to understand that such forms are extremely general in nature and, often, will be less likely to withstand legal scrutiny. An experienced attorney can assist you in identifying the interests you are trying to protect. Counsel will then draft an agreement that is narrowly tailored to meet those interests. This can help to prevent a Court from finding that your agreement is overly broad.

Attempt to reach an agreed-upon resolution with your former employee.

You do not need to immediately threaten an employee with litigation if you are a business owner and are concerned about them leaving in violation of their agreement. Quite often it is possible to reach a subsequent agreement with the employee in which you are guaranteed that your interests will be protected. This can save your company the risk of having the initial non-compete agreement invalidated by a Court. Again, an experienced attorney can assist with drafting any necessary subsequent agreements.

Seek an injunction as soon as possible if your business is suffering damages.

If you are unable to reach an agreement with your former employee, then it is important that you seek an injunction if their conduct is damaging your business. Injunctions can be obtained relatively quickly and, assuming one is granted, they can prevent the former employee from further damaging your business until the matter is heard on the merits.

Contact a New Jersey Business Dispute Attorney For Assistance with Enforcing a Non-Compete Agreement

If you are a New Jersey business owner, contact us today for assistance with drafting or enforcing a non-compete agreement. We understand that your business interests must be protected. Daniel P. Silberstein is a New Jersey business dispute attorney who has been assisting businesses in our area for over two decades. Contact us online or by telephone to schedule an initial consultation. In addition to Union County, our Cranford office helps business owners throughout the state. This includes companies in the areas of Elizabeth, Newark, and more.