Restrictive Covenants in Employment Agreements – Can You Fight Them?

It’s your last day of work before your new job. You’re almost at the door when the head of Human Resources reminds you of the employment agreement you signed, which restricts you from engaging in any activity that competes with your previous employer. Your mind falters as you wonder what is “competing activity” and whether you are breaching your employment agreement by taking the new job. Could you possibly be blocked from doing that?

This is an example of a restrictive covenant. Restrictive covenants are agreements between employers and employees that restrict an employee from doing certain things when an employee leaves his/her job. The intention is to allow employers to protect their information and technology after one of their employees leave. There are a few different types of restrictive covenants:

• Non-compete covenants – restrictions on a previous employee from working for a similar competing business, like the example described above.

• Non-solicit covenants – restrictions on a previous employee from stealing or poaching clients from a previous employer

• Non-dealing covenants – restrictions on a previous employee from dealing with previous clients, no matter which party approaches the other

• Non-poaching covenants – restrictions on a previous employee from stealing or poaching employees of the former employer

In New Jersey, there is no specific law on restrictive covenants; each restrictive covenant’s validity is determined, if necessary, on a case-by-case basis by a New Jersey court. Our courts will enforce restrictive covenants if they are reasonable in duration, territory and scope. If an employer can show that a restriction (i) is necessary to protect the parties’ legitimate interests, (ii) does not cause undue hardship on the former employee and (iii) is not against public interest, it will be valid.

What constitutes a “legitimate interest”? The courts believes that an employer can look to protect customer relationships, trade secrets and confidential business information in restrictive covenants. As for “undue hardship”, a court will look to see if the employee can find other work in his field and the burden of the restriction on the employee. Finally, the court determines “public interest” by looking at the public’s right to freely access professional advice and an employer’s interest in its relationships.

Restrictive covenants can be enforced even when an employer terminates an employee. Enforceability can also depend on the specific industry. Generally, though, New Jersey courts have typically been employee-friendly and have disfavored enforcing restrictive covenants.

This area of law is sensitive to a number of factors including industry, court, contract terms and parties. If you have a question about a specific clause in your employment agreement, you should seek legal counsel and guidance. Angela Yu is a New Jersey and New York attorney with a multifaceted practice area focusing in corporate, real estate and general contract law. She uses her interest in real life application of the law to author articles and other scholarship on a broad range of cutting-edge legal and business topics. Ms. Yu is a published legal author and holds a J.D. and M.B.A. from Rutgers School of Law and Rutgers Business School. Neither Angela nor Mike Farhi provides legal advice on this website. This blog post and any blog posts do not constitute legal advice.