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Non-Compete and Non-Solicitation Agreements

Non-Compete Agreements

  • Non-competition agreements (also known as “non-competes”) are contracts, or clauses within contracts, that prevent an employee from working for a competitor after leaving their current employer. Employers sometimes require new employees to sign a non-compete as a condition of hiring, or after a period of employment in exchange for new perks like stock options. Non-compete agreements protect employers from things like dissemination of trade secrets or the loss of clients who might follow a departed employee to a new company in the same geographic area, but they can also severely impact an employee’s ability to earn a living.
  • Traditionally, non-competes were found in fields like technology or sales, where trade secrets are closely held and specialized skills are often required. But now, non-competes are so common that you might be required to sign one to work as a factory manager, camp counselor, yoga instructor, or even a summer intern.
  • Just because an employer requires an employee to sign a con-compete agreement, it does not necessarily mean that it is valid and can be used against the employee. These clauses are treated differently by the courts than most other contract terms. In general, in order to be valid, a non-compete agreement must (1) protect a legitimate business interest of the employer, (2) be supported by consideration, and (3) be reasonable in the geographical area it covers and the length of time it is in effect.
  • In New Jersey, non-compete agreements are viewed unfavorably as restraints of trade. To be arguably enforceable, such an agreement must protect the legitimate interests of the employer, not impose an undue hardship on the employee, and not be injurious to the public. The type of industry may affect what is considered a legitimate interest for the employer to protect. For example, in the medical context, there is no legitimate interest in preventing competition as such, but there is a legitimate interest in protecting the employer’s relationship with current patients utilizing the practice. Hardship on an employee can be undue when termination of employment occurs because of a breach of the employment contract by the employer.

Non-Solicitation Agreements

  • Non-solicitation agreements are contracts, or clauses within contracts, that prevent a former employee from soliciting a company’s customers, clients, or employees for the benefit of a competitor, after the employee leaves the company.
  • Usually, a non-solicitation agreement will be part of a larger document, for example, an employment contract, a non-compete agreement, or severance agreement.
  • Non-solicitation agreements are common in sales or service industries, where a business’s customer list is extremely important.
  • To be enforceable, a non-solicitation agreement (1) must protect a legitimate business interest, such as a valuable customer list, or the departure of employees with specialized skills or knowledge of trade secrets; (2) must protect a business interest that is not readily available to the public, so, for example, if a business’s client list was available online for anyone to see, it is not protected by a non-solicitation agreement; and (3) cannot attempt to punish a former employee for clients or employees leaving the company and moving to a competitor voluntarily, unless the departed employee used inside information from the former employer to induce them to join the competitor.

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