Maximizing the Effectiveness of Non-Compete Agreements

The most common forms of intellectual property are confidential business information, proprietary information and trade secrets. Almost every business believes that it has proprietary information. The owner of the business will often believe that it has been damaged if a former employee, former business owner or prospective investor/business owner obtains and uses the proprietary information, although the extent to which such damages will be recoverable will vary widely depending on the factual circumstances.

States have long recognized that the owner of a business has a protectable interest in trade secrets and just plain confidential business information. Sun Dial Corp. v. Rideout, 16 N.J. 252, 259, 108 A.2d 442 (1954). For example, New Jersey Supreme Court has also long recognized the appropriateness of using non-compete agreements to protect the employer’s interest. In A. Hollander & Son, Inc. v. Imperial Fur Blending Corp., 2 N.J. 235 (1949). In the early 1970s, the New Jersey Supreme Court formalized the framework for analyzing cases involving non-compete agreements in a three-part test . Solari Industries Inc. v. Malady, 55 N.J. 571 (1970); Whitmyer Bros., Inc. v. Doyle, 58 N.J. 25 (1971). Simply put, a noncompetition covenant was reasonable if it “simply protects the legitimate interests of the employer, imposes no undue hardship on the employee and is not injurious to the public.” While the law in this area is relatively settled, the application of the law depends on the facts. In other words, the devil is in the details.