Updated January 18, 2023
A New Jersey non-compete agreement is legally enforceable to restrict a former employee from working in the same field for a duration and geographical area. An employer may enter into a non-compete to protect its business’s “legitimate interests.” This includes the employer’s customer relationships, trade secrets, and confidential business information.
Laws
Legally Enforceable?
Yes, a non-compete in New Jersey is legally enforceable if it follows the “Solari/Whitmyer” test:
1. Simply protects the legitimate interests of the employer;
2. Imposes no undue hardship on the employee; and
3. Is not injurious to the public.
Source: Solari Industries, Inc. v. Malady (1970) & Whitmyer Bros., Inc. v. Doyle (1971)
Psychologists (exempt)
A licensed psychologist is exempt from entering any agreement that prohibits clients from being able to see their preferred therapist of choice.
Source: § 13:42-10.16
Attorneys (exempt)
A licensed attorney cannot participate in offering or making an agreement that restricts their right to practice law after employment termination.
Source: RPC 5.6
Legitimate Interest
A “legitimate interest” can be described as:
- Customer relationships;
- Trade secrets; and
- Confidential business information.
Source: Coskey’s TV & Radio Sales v. Foti (1992)
Customer Relationships
For customer relationships, there must be evidence that “a significant investment of time, effort and money which is worthy of protection.” (A.T. Hudson & Co., Inc. v. Donovan (1987))
However, the New Jersey Superior Court has recently limited the protectable employer’s customers to those only an employee had direct contact with, not all the employer’s customers. (ADP, LLC v. Kusins (2019)
Continued Employment
If an employee is offered continued employment, it will be validated as sufficient consideration for a non-compete.
Source: Hogan v. Bergen Brunswig Corp. (1977)
Maximum Term
3 years has been found legitimate if the geographical area for the non-compete is limited to the city/town where the employer is located.
Source: Fullerton Lumber Co. v. Torborg (1955)
Blue Penciling
Blue penciling is allowed and lets a court modify and enforce a non-compete to the extent reasonable under the law.
Definition
The term “blue pencil[ing]” refers to a court’s modification or tailoring of a restrictive covenant.
Source: ADP, LLC v. Kusins (2019)