In the day of downsizing and transient employees, it is more important now than ever for employers to protect their legitimate business interests. Often your employees will learn your business secrets and confidential information, as well as the identity, needs and preferences of your clients. If not properly protected, such information could be used by your employees to compete directly against you, or move onto one of your competitors and share such information. To prevent this, every employer should have its employees sign non-compete agreements (restrictive covenants). Such agreements, generally, provide that the employee will not, for a specific time and within a certain geographical area, compete against his/her former employer.
The enforceability of non-compete agreements are highly fact sensitive and covenants that are overly broad and /or punitive are generally not enforced. To be enforceable in New Jersey, restrictive covenants must be “reasonable” under the circumstances. Because courts generally disfavor non-compete agreements (because they prevent the free movement of labor), non-compete agreements must be carefully drafted to withstand judicial scrutiny. Non-compete agreements will generally withstand attack if an employer establishes: (i) the covenant protects a legitimate business interest; (2) the covenant imposes no undue hardship on the employee; and (3) the public interest is not injured by the covenant. Therefore, it is important when drafting non-compete agreements that each provision be carefully drafted to balance an employer’s legitimate interests against an employee’s right to work.
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