Think Twice Before Signing A Non-Compete Agreement

The next time an employer asks you to sign a Non-Compete agreement; you may want to think twice. A Non-Compete can either be a provision in your initial employment contract, or can be a later stand alone document.

Basically, it’s a contract where you promise not to compete against your employer for a specific duration of time, usually 2-3 years, after the employment relationship ends. New Jersey courts have historically ruled for the employer when lawsuits to enforce are brought. They generally say that an employment contract is not be something to be dismantled easily. This promotes business in the state, and gives employers and employees a sense of security in knowing that employment agreements are binding.

People are often quick to sign, without carefully considering the legal ramifications. It can make it next to impossible to find work in your industry without violating the agreement. For example, a highly specialized engineer that signs such an agreement might find it impossible to find a new job that utilizes his or her specialization, as that job market is incredibly small. People can be forced to take severe pay cuts, or be unable to find work in their field at all.

New Jersey case law governs the enforceability of these covenants on a “case-by-case” basis, meaning the facts of each situation are examined carefully. New Jersey courts require that the contract (1) protects the legitimate interests of the employer; (2) does not impose an undue hardship on the employee; and (3) is not injurious to the public market.

First, in order to be valid, the employer simply needs to show that the agreement protects a legitimate interest. These include: protecting trade secrets; confidential information; and business relationships/contact/s. An employer can’t just say they want the agreement to prevent future business competition.

Second, it can’t impose undue hardship on an employee. This is a highly “circumstance-specific” test because courts are essentially allowed to consider a “global view” of the employment relationship and the effect of the provision on each person. A judge will consider the duration, geographic area, and the specificity of the promise. For example, an employer can’t designate that you are barred from being a construction worker for a 2000-mile radius for ten years. An employee that quits is less likely to be found in an undue hardship situation, as opposed to one terminated.

The final requirement is that the agreement doesn’t injure broader economic public interests. Courts often use this to invalidate agreements when they feel that it severely damages the public interest or the availability of goods or services. As a matter of fact, some professions highly restrict or ban such agreements outright under the law, for example, in the medical or legal field. The reason? The public’s access to medical attention is far more important than a hospital’s interest in making money.

It is important to know that every non-compete agreement is highly fact specific. As they become more and more common, courts are enforcing them with greater regularity. The professions affected run the gamut, everyone from barbers to CEOs are signing away future employment opportunities every day. Employees are often blind sided by these agreements sometimes weeks after signing their initial contract and beginning work. The reality is that it’s a condition of getting and keeping the job. But everyone presented with a non-compete should at least read it carefully and consult with an experienced attorney. Evan Xavier Bakhet is a J.D. Candidate at Rutgers School of Law-Newark with a scheduled graduation date in 2017. He collaborated with me on this blog.