Non-Compete Clause
You’ve been offered a new job, and your prospective employer wants you to sign a non-compete/non-solicitation agreement — set forth in an Offer Letter and/or a separate Contract. Should you sign the documents? Should you take the job?
How a prospective employer presents these contracts or restrictions to you may be an indication of how they’ll treat you throughout your employment. Many employees don’t understand what these restrictions mean and what questions they need to ask before contractually committing themselves.
Marketplace Background
Use of non-compete clauses has been on the rise for the last 10 years. These sometimes sketchy provisions were once used for senior executives, scientists, technicians, and sales people, but more recently may be presented as an express condition of employment to all new employees at all levels and in many industries. These provisions may be confusing and misleading to a new employee.
And management does not hesitate to ask existing employees to sign or abide by them, even if the employment began without such provisions.
Commonly, non-compete provisions seek to limit an employee from working with a competing employer or soliciting employees from the former company following an employee’s departure, whether the employee quits, is fired, or becomes laid off. It doesn’t matter who decides to end the employment: if the employer feels that the employee’s separation will impact the company negatively, they may opt to enforce the provisions in court, including a request for a preliminary injunction, a final injunction, a request for attorneys’ fees, damages, and possibly a lawsuit against any new employer on the theory of interference with the pre-existing employment contract.
Employers do not typically provide extra compensation for signing these agreements. Although they may be financially beneficial to the employer, and provide needed protection, such provisions are often treated as not adding value to the employer. But they certainly seek to limit your future earnings if you are unable to work in your trained field. For this reason, such provisions require careful scrutiny post-termination, to see if they are likely to be enforceable.
What Benefits the Employer May Not Benefit the Worker!
While non-compete clauses may be good for an employer’s business, they can have serious, long-lasting effects on a person’s career. To an employee, a non-compete contract may look like it will not do much harm, but if you’re not careful such provisions could cost you a lot of time and money. A non-compete contract is a form of a restriction setting out the rights and obligations of an employee before he or she decides to leave the company.
Some say that non-compete contracts are not enforceable as an unlawful restriction on employment and competition. That is incorrect. Even though non-competition is not preferred public policy in New Jersey, a contract that is narrowly and reasonably drafted, consistent with law, and that protects the employer’s interests adequately while not seriously harming the employee’s ability to earn a living, may in fact be enforced. It is up to the courts to decide which of these agreements will be enforced, modified, or struck down.
There is no New Jersey statutory or regulatory system controlling non-competes. Rather, it is a matter of “common law” case by case analysis and decision that govern this aspect of employment law.
“When should I consult with an employment lawyer for workers?”
We strongly recommend that you meet with an employment lawyer representing workers before taking the job offer, so he or she may properly advise you of your rights and responsibilities surrounding a non-compete clause. You should consult with an employment lawyer if:
•· You have been presented with an Offer Letter or an employment agreement contract that contains a non-compete/non-solicitation clause;
•· Your current employer advises you that when your employment ends, you are not allowed to work with their competitors or other companies in the same type of industry;
•· You want to re-negotiate your contract with your employer; or
•· You have questions or concerns about or do not fully understand your employment contract or Handbook.
Avoiding or neglecting a timely and appropriate legal consultation could result in your employer filing a lawsuit against you, as well as against any new employer, because the former employer believes the new company and you have violated the non-competition provisions of your prior agreement.
If you are working with a recruiter, moving from one employer to another, you must promptly disclose the existence and contents of a non-compete provision on point. It is not only the right and fair thing to do, but you also could avoid an embarrassing and career-threatening lawsuit.
New Jersey Courts Determine If They Will Enforce a Non-Compete Agreement
New Jersey courts put the burden on the employer to show “reasonableness” of the employment restrictions, but may feel more inclined to enforce if your former employer shows:
•· Voluntary entry into the terms by both parties;
•· You quit the job rather than were fired;
•· The hardship on the former employee exceeds that of the former employee;
•· Reasonable limits as to the restrictions’ duration and geography; and
•· The former employee’s blatant violation of the restrictions, with an indication that the former employee’s work for a clearly identified competitor will unreasonably and adversely affect the former employer’s business.
In other words, the former employer must have legitimate reasons for reasonably tailored enforcement, to protect their interests or the interests of their business. It must not impose unfair hardships onto the employee or harm the interests of the public. To the extent a Judge of Superior Court finds undue or unfair hardship, the Judge has the power, using reasonable discretion, to modify the restrictive provisions, rather than throw them out.
The Do’s and Don’ts of Workplace Non-Competes
When a would-be new employer presents you with prospective non-compete restrictions, bear the following in mind:
•· 1. Seek legal counsel to limit the employer’s stated as much as possible. Some employers will negotiate to avoid legal proceedings and attendant costs and bad publicity.
•· 2. Modify the draft contract provisions to define precisely by product, field, or company names all future restrictions and allowances.
•· 3. Get rid of any ‘would cause irreparable damage …‘ phrases, to avoid open-ended consequences for violations. Go over the specifics of penalties caused by violations to the contract.
•· 4. Seek to limit the restrictions to cases of voluntary termination – so if they fire you, then the non-compete is no longer valid and cannot be enforced.
•· 5. Ask to eliminate the non-compete terms upon the first or second anniversary of your hire.
•· 6. Ask to delay the effective date of the restrictions, to make sure you’re really going to stick with this new company, so you don’t end up working one month, leaving, and then discovering you are trapped for a year or more of non-competition.
In sum, if you find your dream job with a great company, conditioned on signing a non-compete agreement, you should take reasonable time to evaluate the do’s and don’ts of signing. Decide if you want to commit yourself to that company, even if there is a strong possibility that doing so could affect your livelihood and career. A restriction of even a year will feel huge to you if you have to sit out and wait for that time to pass. Your earnings, career growth, and networking prospects could dry up while you wait.
Conclusion
We have long and deep experience with employment law matters on behalf of workers, including negotiations, mediation, arbitration, and litigation. send us an email to arrange for a reduced fee initial consultation, in person. We are happy to discuss your non-compete or other workers’ rights concerns with you.