"Are Noncompete Agreements Valid If Fired"
Vol. 2, Issue 7, 2008 www.snjbp.com Ask The Expert Using Noncompete Agreements to Protect Your Business by Betsy G. Ramos, Esq.,Capehart & Scatchard, P.A. Employers can protect their business and customers from former employees noncompete must not create a shortage of the type of services rendered by through the use of a noncompete agreement. New Jersey is one of the many the employee. For example, the court might not validate the noncompete if states that recognize the validity of this type of agreement. Through the use of the employee was a specialized physician and enforcement would deprive the such an agreement, an employee can be barred from working in a competitive public of that type of physician in a limited area. business, as well as doing business with your customers - Also, if the employer is a professional, the New Jersey within a reasonable area and for a reasonable period of time. courts would bar the employee from soliciting former The key is to have a properly drafted agreement, tailored to patients or clients, but would not prevent the employee from your business’ needs. To have an effective and enforceable providing services to the patients or clients. As an example, noncompete agreement, the following must be shown: an employer physician could stop his or her employee from 1 - It must serve a legitimate need of the employer. The setting up a competing office within a reasonable distance business must have a legitimate interest to protect to justify from the physician’s office and prevent the employee from the use of a noncompete and the restraint of the employee soliciting patients. However, the employee would still be from engaging in a competitive business. Usually, the permitted to continue to treat the former patients, if that was protection of customer relationships or the safeguarding their wish. of proprietary business information would be sufficient Whether or not the noncompete agreement ends up being justification. enforceable in every scenario, using this agreement serves as 2 - It must be supported by valid “consideration.” a great deterrent effect. Employees would know that if they Consideration is typically a “benefit” given to the employee, leave voluntarily, the agreements are generally valid. These such as an offer of employment or a promotion. However, agreements can also include provisions to prevent the former in New Jersey, continued employment is also valid employee from soliciting other employees, as well as taking consideration, as long as the employee does not leave or is your proprietary and confidential information. Thus, these fired within months after the agreement is signed. Thus, an agreements are effective devices to protect an employer’s employer can compel either new or existing employees to Betsy G. Ramos, Esq. business and customers. sign a noncompete agreement. 3 - It must be reasonable in both time and geographic area. An employer cannot bar an employee from competing against it forever. A one year time period is generally enforceable and a longer time period could also be This article was prepared by Betsy G. Ramos, Esq. a member of Capehart Scatchard’s enforceable depending on the circumstances. As for geographic area, if the Litigation Group. Ms. Ramos is an experienced litigator with over 25 years experience noncompete is for a salesperson, it should be limited to that person’s territory. handling diverse matters. Her areas of practice include business litigation, employment If it is for a key employee, such as a senior manager, it could be as broad as litigation, construction litigation, insurance coverage, tort defense, and general the geographic area of the employer. litigation. She has developed extensive experience in handling noncompete agreements and trade secret law by counseling clients in these issues, as well as litigating 4 - It must not impose an undue hardship to the employee. Suffering some numerous noncompete and trade secret cases. personal hardship, in having to find new employment or traveling further to a Should you have any questions or would like more information, please contact Ms. different job, does not usually constitute an “undue hardship.” However, if the Ramos at 856.914.2052 or by e-mail at firstname.lastname@example.org. For more information employee is fired, as opposed to quitting, it may be harder to persuade a court on Capehart Scatchard, visit our website at www.capehart.com. to enforce the noncompete. The court would then scrutinize more closely This article is designed to provide general information on the topic presented and whether the imposition of the noncompete agreement would create a hardship is provided with the understanding that the author is not rendering any legal or for the employee. professional services or advice. This article is not a substitute for such legal or advice. 5 - It must not be injurious to the general public. Enforcement of the If such services are required, you should retain competent legal counsel. Reprinted with the permission of SNJ Business People.