We recognize the benefits to employers and disadvantages to employees of noncompete clauses in employment contracts. Estimates suggest that as much as 20% of the US workforce may be subject to noncompete requirements and that 50% of private sector employers use them to some extent. They serve various purposes from agreements not to compete to restrictions on the location of future employment. While state law differs and at least three states follow the common law which prohibited them altogether, New Jersey generally follows the majority rule that flows from the 1711 holding by the Queen’s Bench in Mitchel v. Reynolds 24 Eng. Rep. 347; they are enforceable if reasonable in time and scope. Stated differently, the limitations in the agreement must be reasonable. And that may depend upon the contractual provisions and, for example, on the period of employment covered by the agreement and whether the employee worked for the employer for a short or lengthy period, for a fixed salary or as an owner of a business to be sold and the position held for the contracting employer.
Currently there is no statute governing the subject in New Jersey. Case law generally protects the legitimate interests of the employer if the noncompete provision is reasonable in time, duration and scope of restrictions, “protects the legitimate interests of the employer, imposed no unduly hardship on the [future former] employee and is not injurious to the public,” and courts can modify or “blue pencil” the agreement to the extent it is unenforceable. Solari Industries v. Malady, 55 NJ 571, 585 (1970); see also e.g., Karlin v. Weinberg, 77 NJ 408 (1978); Ingersoll-Rand Co. v. Ciavatta, 110 NJ 609 (1988); Community Hospital Group v. More, 183 N.J. 36 (2005). Each case is different depending upon the circumstances and contract provisions. Certainly, protection of trade secrets and customer lists or contacts and the limitations and restrictions on competition by a high paid employee with a well-known name or expertise is of significance, but such agreements are anti-competitive and restrict a potential employee’s ability to find work or promote himself or herself.
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