Restrictive Covenants

Restrictive covenants restrict an employee’s actions.  Typically, these restrictions limit what the employee can do after she leaves her employer.  For instance, she may be prohibited from working for a competitor, disclosing trade secrets, or soliciting customers.  Restrictive covenants are enforceable under New Jersey employment Law if properly drafted.

Our employment attorneys represent employees on the full range of issues concerning restrictive covenants. We help employers draft restrictive covenants with key and other employees.  We negotiate restrictive covenants in employment and separation agreements. We assist management in interpreting and enforcement of restrictive covenants.  Our employment attorneys litigate disputes over breaches and enforcement of restrictive covenants.

Any agreement which limits an employer’s action is a restrictive covenant.  There are many different types, but these are the main ones.

• Non-Compete Agreements.  “Non-compete agreements,” also known as “non-competition agreements,” prohibit departing employees from competing against their former employers.  
• Non-Solicitation Agreements. “Non-solicitation agreements,” also known as “no raiding agreements” normally protect an employer in two areas.  First, they can prohibit departing employees from doing business with their former employer’s customers.  Second, they can prevent departing employees from soliciting their former coworkers to leave and join the employee at her new company.
• Confidentiality And Non-Disclosure Agreements.  These prohibit departing employees from disclosing a wide range of information from their former employee, such as trade secrets, customer lists, formulas, pricing information, and a wide range of other information.
Drafting and Enforceability of Restrictive Covenants.

Restrictive covenants are enforceable if they meet the requirements of New Jersey employment law.  It is vital that they are drafted to meet the law’s requirements.

New Jersey courts employ a test to determine whether a restrictive covenant is enforceable.  First, the restrictive covenant must advance some interest of the employer which the courts deem valid (restricting disclosure of trade secrets, for example).  Second, the restrictions must be reasonable in time, geography, and the type of work prohibited.  Third, the restriction must place an undue hardship on the employee – in other words, it must leave the employee the ability to reasonably make a living.  Finally, the restriction must not be against public policy.

However, while it is easy to describe the test, it is more difficult to apply in practice.  Courts treat each covenant, each employer, and each employee individually.   Sometimes, courts will apply the “blue pencil,” and delete the portions which are not valid, while enforcing the other valid portions.

Litigation Over Restrictive Covenants; Enforcement.

Restrictive covenants are important matters.  A departing employee who takes trade secrets, or who takes a customer lists and starts luring away the employer’s clients, can cause serious, often irreparable harm to the business very quickly.  It is important to seek relief as soon as possible in such an event.  New Jersey courts will often issue restraining orders which prohibit former employees from future violations, and will remedy past violations, such as prohibiting employees from doing business with the company’s current or former customers.  Sometimes litigation is not necessary, and a “cease and desist” letter will accomplish the desired goal.  Even when the breach of the restrictive is not discovered until after the fact, money damages can often be obtained.  Likewise, many restrictive covenants contain provisions which will allow the employer to recover attorneys fees and expenses from the former employee.

A company hiring a key employee from another company should inquire whether she is subject to a restrictive covenant.  If she is, the hiring company needs to ensure that she is not breaching the covenant in her new employment, which could open the new employer up to liability for tortious interference.  A good restrictive covenant will require the employee to tell any new employer of the restriction’s existence and give it a copy.

Negotiating Restrictive Covenants. 

Our attorneys have significant experience representing employers in negotiating and drafting enforceable restrictive covenants of all types to protect their interests.

Contact Us. 

Please e-mail us or call (973) 890-0004 to speak with one of our employment attorneys to find out more about what we do regarding negotiating, drafting and enforcing restrictive covenants.