In New Jersey, some employers ask their employees to sign non-compete agreements as a condition of employment. These are agreements that the employee will refrain from working for a competitor of the company for a certain time after his or her employment with the current employer ends. Non-compete agreements are not always enforceable in New Jersey, however. If you were asked to sign a non-compete agreement, the attorneys at Swartz Swidler can review it and talk to you about your options.
What is a non-compete agreement?
A non-compete agreement is a contract between an employer and an employee. This agreement may be given to new employees as a part of their onboarding paperwork. These documents ask the employees to agree not to work in a similar position with a competitor of the employer for a set period. Normally, the period will be from 12 to 24 months. The agreement may cover a certain geographic area around the employer’s business, or it may apply nationally. Not all non-compete agreements are enforceable, however.
What should be included in a non-compete agreement?
A non-compete agreement should explain what it means to work for a competitor. In many cases, working for a competitor means a direct competitor. However, some businesses have much broader non-compete agreements. They might forbid working for any other employer in the same industry even if that employer is not a direct competitor or if the worker would have a different position. Most companies also include language forbidding workers from starting new businesses to compete with them.
The agreement should also include language that explains how long the non-compete agreement will apply. This may be a year or longer. For sensitive positions, the period could be longer. The agreement should include the geographic area that will be covered and whether any compensation will be provided for the non-compete agreement. If compensation will be provided, there may be language stating that the employee will have to repay the employer if the non-compete agreement is broken. Finally, the non-compete agreement should include language that explains whether it will be enforced if the worker is terminated involuntarily.
Advantages and disadvantages of non-compete agreements for employers
Employers can use non-compete agreements to protect their confidential information and trade secrets. They might also be used to prevent former employees from taking away important customers from the business. Non-compete agreements can also prevent former employees from using their skills to work for a competitor or to start a business that competes with the employer’s company.
There are some disadvantages for employers for using non-compete agreements. Employees who are thinking about leaving might leave sooner if the employer asks them to sign non-compete agreements. Asking employees to sign non-compete agreements can also result in litigation. In many cases, non-compete agreements are unnecessary since confidentiality clauses can prevent employees from using proprietary information at future employers or in future businesses. If a non-compete agreement is too restrictive, it is likely to be struck down by a court.
Advantages and disadvantages of non-compete agreements for employees
For employees, agreeing to sign a non-compete agreement might be required to gain employment with a particular employer. The agreement may include a payout clause in exchange for agreeing not to compete for a specific time. The terms of the non-compete clause might be negotiable. Each area of the agreement, including the time length, the geographic area, and the payout clause could be negotiated to make the agreement more reasonable. Employees may also want to negotiate that the agreement will be void if they are fired from their jobs.
When an employee is asked to sign a non-compete agreement, he or she might want to get help from an employment attorney. In some industries, it might make getting a new job more difficult. Some employees may not want to sign non-compete agreements and may have to turn down the job to protect their future prospects.
Enforceability of non-compete clauses
New Jersey courts generally do not like non-compete agreements that are overly restrictive on workers’ rights to earn a living. Courts evaluate non-compete agreements by looking at the following three factors:
- Whether the agreement is necessary to protect the employer’s legitimate interests;
- Whether the agreement places an undue hardship on the employee; and
- Whether the agreement is against the interests of the public.
Agreements that are too restrictive will generally be found to be unenforceable. For example, Jimmy John’s had its sandwich shop workers sign non-compete agreements that prohibited them from working at any other sandwich shop located within two miles of any of the restaurant’s locations in the entire U.S. This clause was declared unenforceable, and the restaurant chain no longer makes its employees sign these agreements.
Contact Swartz Swidler
If you have been asked to sign a non-compete agreement, it is a good idea to have the document reviewed by an attorney before you sign. If you are preparing to leave your employer and signed a non-compete agreement, it is also a good idea to talk to an attorney about your options. Contact Swartz Swidler to schedule a consultation by filling out our online contact form.
