Non-Compete Agreements: What is Reasonable?

By Chakeema Cruickshank, Staff Writer

 What is a Non-Compete Agreement?

 A non-compete agreement is a contract between employers and employees that restricts an individual from working for a competitor during or after their employment. They can also prevent an employee from starting their own business a period of time after employment. These agreements can be stand alone after an employee leaves a position or a separate clause in a longer employment contract. The amount of time and geographical distance will vary. According to 2019 data from the Economic Policy Institute, approximately 32% of private sector businesses use these agreements regardless of job duties or pay. Moreover, roughly half of the reporting employers required some employees to enter into non-compete agreements. This makes them fairly common, therefore, it is important to understand what they entail and what a reasonable agreement looks like.

Non-competes are intended to protect businesses and help employers retain confidential information, such as clients and trade secrets.  For example, a design manufacturing business may have a non-compete prohibiting employees from working for competitors for one year. While these are meant to protect employers, non-competes may limit an employee’s wage growth and job mobility out of fear of lawsuits. In New Jersey, there are no statutes that regulate non-competes. Looking to case law, the New Jersey Supreme Court has detailed a test that can be used to determine what is reasonable. For a non-compete agreement to be enforceable, courts require that the non-compete agreement protects the legitimate interests of the employer, does not impose an undue hardship on the employee, and is not injurious to the public interest. Solari Industry v. Malady 55 N.J. 571 (1970). This means that all in all, the agreement must be reasonable. Non-competes may be legally binding and the enforceability of these agreements can vary from state to state. In New Jersey, courts will look at multiple factors to determine whether the agreement may be legally binding.

What is Reasonable?

 It is important to note that courts will largely consider the reasonableness of the non-compete agreement. For instance, a contract that prohibits competition for many years may be overly burdensome on an employee. This would  limit  their job mobility and ability to grow their income. In this case, the court would likely find this agreement unreasonable. In NJ, courts may enforce contracts for one to five years depending on the totality of the agreement.

These limits can also be geographical. In determining whether a restrictive clause in an employment contract is overly broad, courts should consider the contract’s duration, its geographic limits, and the scope of activities prohibited. Community Hospital Group., Inc. v. More, 869 A.2d 884 (2005). Here, the New Jersey Supreme Court reduced the distance of a neurosurgeon’s non-compete restriction. This was because a hospital outside the mile radius had a shortage of doctors. By preventing the doctor from working there, it would violate public policy.

Under New Jersey law, post-employment restrictive contracts are enforceable if the terms of the covenant are reasonable in light of the totality of the circumstances. National Reprographics, Inc. v. Strom, 621 F. Supp. 2d 204 (N.J. 2009). Therefore, each circumstance is different and it is important to weigh the different factors that come into play. A non-compete must weigh the legitimate interests of an employer with the rights of the employee.

It is important to be aware of the contents of the non-compete agreement before signing. Non-competes can be common in certain industries and it is vital to know what the agreement entails in its entirety to make sure they are not overly restrictive, unreasonable, or violate the employee’s rights.

Staff Writer Chakeema Cruickshank is currently a first year at Rutgers Law School Camden. Prior to Rutgers Law, she worked for United States Senator Robert Menendez doing constituent relations and outreach for education, environment, and technology.