Non compete
restrictive covenant brief
The NJ Supreme Court ruled a non-compete covenant as
enforceable and not against public policy in Maw v. Advanced Clinical
Communications, Inc (ACCI) 179 N.J. 439, 846 A.2d 1222. (2004).
In this case, Karol Maw began working for
Advanced Clinical Communications, Inc. (ACCI) as a graphic designer on November
1, 1997. ACCI provides marketing and educational services for the
pharmaceutical and healthcare industries. Maw had been hired to design written
materials used by ACCI in its marketing and educational programs. Maw was promoted to Senior Graphic Designer
in January 2001. Thereafter, pursuant to a new company policy, ACCI required
all of its employees at or above the level of “coordinator” to sign a
non-compete agreement as a condition of continuing employment. The agreement
precluded, among other things, Maw from becoming employed by any competitor or
customer of ACCI for a period of two years following the termination of her
employment. Maw was informed that she could seek legal advice concerning the
employment agreement. Maw consulted her father, an attorney, who suggested
changes. Maw presented those revisions to ACCI’s Human Resource Department but
was told that no changes could be made. Maw did not sign the non-compete
agreement, prompting her termination by ACCI in March 2001 for failing to
comply with company policy.
The
court in Maw v. Advanced Clinical Communications, Inc. held her
conscientious employee CEPA claim must fail because our State’s public policy
respecting non compete agreements is not set forth in a “clear mandate,” and
does not “concern[] the public health, safety or welfare or protection of the
environment.” N.J.S.A. 34:19-3c(3). Over a generation ago, our Court sketched
the broad parameters for determining whether a non compete agreement was
unenforceable. Whitmyer Bros., Inc. v. Doyle, 58 N.J. 25 (1971); Solari
Indus. Inc. v. Malady, 55 N.J. 571 (1970). In Solari, the Supreme
Court canvassed, the historical treatment of non compete agreements, and
acknowledged the previously held negative view of such agreements. 55 N.J. at
575-84. The Court cited academic writings on the topic that elaborated in
greater detail on the relation of such agreements to Anglo-American commercial
practices. See, e.g., Solari, supra, 55 N.J. at 574-77 (citing Harlan M.
Blake, Employee Agreements Not to Compete, 73 Harv. L. Rev. 625 (1960)).
The Court in Maw v.
Advanced Clinical Communications, Inc. held:
"But
Solari was a turning point, for the Court held then “that the time is well due
for the abandonment of New Jersey’s void per se rule in favor of the rule which
permits the total or partial enforcement of noncompetitive agreements to the
extent reasonable under the circumstances.” 55 N.J. at 585. In Whitmyer,
supra, The Court expanded on Solari, establishing what is now known
as the Solari/Whitmyer test for determining whether a non compete agreement is
unreasonable and therefore unenforceable. Under the Solari/Whitmyer test, a non
compete agreement is enforceable “if it ‘simply protects the legitimate
interests of the employer, imposes no undue hardship on the employee and is not
injurious to the public.’” Ingersoll-Rand Co. v. Ciavatta, 110 N.J. 609,
628 (1988) (quoting Whitmyer, supra, 58 N.J. at 32-33). The first two prongs of
the test require a balancing of the employer’s interests in protecting
proprietary and confidential information and the asserted hardship on the
employee. Ingersoll-Rand, supra, 110 N.J. at 634-35. The third requires the
reviewing court to analyze the public’s broad concern in fostering competition,
creativity, and ingenuity. Id. at 639. Solari/Whitmyer has now become an
accepted part of the common law, not only in New Jersey but also in other
jurisdictions around the country. Id. at 630-34."
The Court in Maw v.
Advanced Clinical Communications Inc. stated:
Although
our dissenting colleagues may contend that do-not-compete provisions are, or
should be, per se illegal, in point of fact, they are not illegal per se. It is
not accurate to describe our current caselaw, which allows enforcement of
reasonable non-compete agreements, as a “clear mandate” that disfavors such
agreements. The Solari/Whitmyer test is a multi-part, fact-intensive inquiry.
Not only must multiple interests of differing parties and entities be
identified, but also, those interests must be gauged for reasonableness and
legitimacy. The application of that test here, and as a general matter, simply
does not evoke the type of a “clear mandate of public policy” that was
contemplated by N.J.S.A. 34:19-3c(3).
The Court in Maw v.
Advanced Clinical Communications Inc. was informed by the amici that
non-compete agreements are a common part of commercial employment. The Court did
not accept as a premise that employers, in large numbers, are engaging in a
practice that is “indisputably dangerous to the public health, safety or
welfare.” Dzwonar, supra, 177 N.J. at 464. It is more appropriate to
characterize the business community as having adapted to the Solari/Whitmyer
approach that recognizes that non compete agreements can serve a useful purpose
so long as the agreement is not unreasonable.
The Court in Maw v.
Advanced Clinical Communications Inc. concluded that plaintiff’s private
dispute over the terms of the do-not-compete provision in her employment
agreement does not implicate violation of a clear mandate of public policy as
contemplated by Section 3c(3) of CEPA. As previously noted, plaintiff did have
options available to her. If she could not negotiate terms that were to her
liking, she was free to dispute the reasonableness of those terms if and when
her employer attempted to enforce the agreement. The burden then would be on
the employer to hire counsel and initiate enforcement litigation, Solari,
supra, 55 N.J. at 574, and nothing would preclude an employee-defendant in
such an action from asserting any and all affirmative defenses and
counterclaims. Ingersoll- Rand, supra, 110 N.J. at 621-
The NJ Supreme Court granted greater protection to employers and businesses
in Lamorte Burns & Co., Inc. v. Walters 167 N.J. 285 (2001)
The Court in Lamorte held: By secretly collecting confidential and
proprietary client information while employed by Lamorte Burns & Co., Inc.
and using the data to solicit and take away Lamortes clients immediately after
resigning, Michael Walters and Nancy Nixon breached their duty of loyalty,
tortiously interfered with Lamortes economic advantage, misappropriated
confidential and proprietary information, and competed unfairly.
The Court in Lamorte determined that: The client information
gathered from Lamortes files by Walters and Nixon was not generally available
to the public, would not have been known to defendants but for their employment
by Lamorte, went beyond mere client names, and gave defendants an advantage in
soliciting clients after they resigned. Walters and Nixon knew Lamorte had an
interest in protecting the information. The client information was confidential
and proprietary.
The Supreme Court in Lamorte also held that: An employee may prepare
to start a competing business while employed by the entity he will compete
with, but may not breach the undivided duty of loyalty owed the employer while
still employed by soliciting the employers customers or engaging in other acts
of secret competition. Walters and Nixon breached the duty of loyalty by
collecting protected information while employed by Lamorte for the sole purpose
of gaining an advantage over Lamorte as soon as they resigned.
The Supreme Court in Lamorte held that: Walters and Nixon acted with malice
and in a manner contrary to the notion of free and fair competition by using
the secretly gathered confidential client data to effect a weekend coup,
knowing that the delay in Lamortes discovery of their resignation and
solicitation would work to their economic advantage Restrictive covenants are
very useful for businesses to prevent an employee from taking your clients and
your business.
The
NJ Model Jury charges recognize tortious interference with prospective economic
advantage. The right of a person or company to pursue a lawful business and to
enjoy the fruits and advantages of one’s industry or efforts are rights which
the law protects against unjustified and wrongful interference by another
person.
Thus, the law protects a person’s interest in reasonable expectations
of economic advantage.
In order that the plaintiff may recover damages for a wrongful act, such
wrongful act must be found to have interfered with a reasonable expectancy of
economic advantage or benefit on the part of the plaintiff.
Thus, plaintiff must prove the following elements:
1. The existence of a reasonable expectation of
economic advantage or benefit belonging or accruing to the plaintiff;
2. That the defendant had knowledge of such
expectancy of economic advantage;
3. That the defendant wrongfully and without
justification interfered with plaintiff’s expectancy of economic advantage or
benefit;
4. That in the absence of the wrongful act of the
defendant it is reasonably probable that the plaintiff would have realized
his/her economic advantage or benefit (i.e., effected the sale of the property
and received a commission); and
5. That the plaintiff sustained damages as a
result thereof.
Cases:
Harris
v. Perl, 41 N.J. 455 (1964); Middlesex Concrete, etc., Corp. v. Carteret
Industrial Ass’n., 37 N.J. 507 (1962); Raymond v. Cregar, 38 N.J. 472 (1962);
Rainier’s Dairies v. Raritan Val. Farms, 19 N.J. 552 (1955); Myers v. Arcadio,
Inc., 73 N.J. Super. 493 (App. Div. 1962); Independent Dairy Workers Union of
Hightstown v. Milk Drivers, etc., Local No. 680 30 N.J. 173 (1959); Restatement
(Second) of Torts, Section 766 (1939).
The NJ Model Jury charges
also recognize “UNLAWFUL INTERFERENCE
WITH CONTRACTUAL RELATIONS”
In
determining whether the defendant committed a wrongful act, the ultimate
inquiry is whether defendant unjustifiably interfered with plaintiff’s fair
opportunity to conduct his/her legitimate business affairs.
Everyone has
a right to enjoy the fruits and advantages of his/her own enterprise, industry
and skill, free from unjustified and wrongful interference.
Thus, the law protects a person in the pursuit of
his/her livelihood.
If the act
complained of does not rest upon some legitimate interest, or if there is sharp
dealing or over-reaching, or other conduct below the behavior of fair men
similarly situated, the ensuing loss to the plaintiff should be redressed.
Hence one
who unjustifiably interferes with the contract (or reasonable expectation of
economic advantage) of another has committed a wrongful act.
Cases: Harris v.
Perl, 41 N.J. 455
(1964); Louis Schlesinger Co. v. Rice,
4 N.J. 169,
181 (1950), “a wrongful act is any act which in the ordinary course will
infringe upon the rights of another to his/her damage, except it be done in the
exercise of an equal or superior right”; Raymond
v. Cregar, 38 N.J. 472,
480 (1962), “malicious interference is the intentional doing of a wrongful act
without justification or excuse”; Sokolay
v. Edlin, 65 N.J. Super. 112,
128 (App. Div. 1961), to sustain the allegations that defendant maliciously
interfered with plaintiff’s employment there must be proof of (1) actual
interference by defendant, and (2) the malicious nature of such
interference.
Respectfully
submitted,
_________________________
