New Jersey Employment Lawyers Blog
New Jersey employees currently restricted by non-competes are often faced with the choice – resign and be prohibited from working in their chosen industry, or stay in a job that isn’t right for them. The industry either loses a valuable, often highly experienced, individual or the employer creates a ‘trapped workforce’, building resentment and losing productivity. If litigation ensues as a result of an employee working for a company in violation of the non-compete agreement, the employee will need a significant amount of money they simply do not have to fight the case. And even if they can afford the high costs of litigation, there is never a guarantee the litigation will result in their ability to take a new job or remain in his or her new employment.
Often the terms of a non-compete can seem confusing and overbroad, leaving employees asking “how can I ever leave for a better job?”. Some non-competes bar the employee from working in the same industry for a long period of time, and/or working for a competitor within a wide geographic area. Those ready to leave their jobs can consult an attorney to find out if these terms are really enforceable.
New Jersey courts analyze the enforcement of a non-compete agreement using three factors, all of which must be met in order for an employer to succeed in enforcement; it must (1) protect the legitimate interests of the employer; (2) not impose an undue hardship on the employee; and (3) not be injurious to the public. The Court’s inquiry into these factors is fact specific to the employee, the employer, the new employer and the relationships amongst each other.
This, in part, protects an employee from being held hostage by their non-compete. However, an employee may still find themselves lawfully terminated for refusing to sign a non-compete at the start up of their employment. In those cases, NJ employees do not have a wrongful termination case. When reviewing a non-compete, it can help to have an attorney to advise the employee which clauses can be negotiated, and to discuss the legal impact of signing the document. Having an attorney involved at this stage is often much less expensive than having the attorney become involved after a dispute has arisen concerning the enforceability of the non-compete when there is an alleged breach.
The landscape on this matter is evolving; employees who are looking to change jobs but are too afraid that they might be breaking the terms of their anti-competitive contracts may find that soon, they are no longer beholden to it. States throughout the country have recently passed laws that restrict an employer’s ability to enforce non-competes and some states have prohibited them completely. In New Jersey, there have been several bills proposed over the last few years to restrict employers ability to enforce non-competes, but none of them have been signed into law.
On October 7, 2024 General Counsel Jennifer Abruzzo of the National Labor Board issued a memo and reaffirmed the NLRB position that overbroad non-compete agreements are unlawful. This expands on her memo from May 2023 wherein she took the position that, except in limited circumstances “the proffer, maintenance, or enforcement of non-compete provisions violates the National Labor Relations Act” (NLRA).
In particular, the memorandum contemplates make-whole relief for an employee subject to harmful effects of their overbroad non-compete who can prove that:
(1) there was a vacancy available for a job with a better compensation package;
(2) they were qualified for the job; and
(3) they were discouraged from applying for or accepting the job
If it becomes law, and the Court determines that these factors are met then the employer could be ordered to compensate employees for the difference, whether that is in pay or in benefits. This might logically extend to those employees who remained unemployed for a longer period than they would otherwise have been as a result of the non-compete. Accordingly, a person could satisfy the same 3-part criteria and make the case that they are due make-whole compensation on account of being blocked from applying to appropriate jobs due to the non-compete.
General Counsel Abruzzo’s stance boils down to this: “where an employer has maintained an unlawful non-compete provision, the harmful financial effects caused by current employees’ and former employees’ attempts to comply with the provision must be remedied”.
Our New Jersey employment lawyers will continue to provide advice and counsel to those seeking to unpack their non-compete and move forwards in their career.