Frequently Asked Questions (FAQ) About Covenants Not to Compete
Restrictive covenants, including non-compete and non-competition agreements, play a critical role in protecting a business’s confidential information, trade secrets, customer relationships, and competitive advantage. However, these agreements must be carefully drafted and narrowly tailored to comply with New Jersey law. At Hanlon Niemann & Wright, our business attorneys advise employers and employees on the enforceability, negotiation, and defense of restrictive covenants to ensure their rights and interests are properly protected.
You have questions that deserve answers. I’ve listed the most frequently asked questions from our clients, along with sensible, generally applicable answers. Remember, though, nothing beats a face-to-face, open discussion with me about your matter. Together we can work it out.
Can a Former Employee Compete Against His or Her Former Employer?
The answer is generally yes, and a new law has seriously limited an employer’s ability to enforce a covenant against certain non-exempt lower-level employees. See the page entitled “Competing Against Your Employer: Is It Allowed?” A former employee may compete with their former employer by accepting employment with a competitor or by starting a competing business.
This includes soliciting the customers of the former employer under limited circumstances, which requires a close legal review by a qualified and experienced NJ covenant not to compete attorney.
Are Trade Secrets Protectable in NJ Under a Covenant Not to Compete?
A trade secret is “a formula, process, device or compilation which one uses in his/her business and which gives him or her an opportunity to obtain an advantage over competitors who do not know about it or how to use it.” A trade secret may take many forms, from a program for a sophisticated software application to a classified or confidential customer list. Trade secret protection in NJ will not be afforded to matters of common knowledge to the public or generally known within the competitive industry. Further, the subject matter sought to be protected as a trade secret must be confidential.
Can Confidential Information, Including Customer Lists, Be Protected in NJ Under a Properly Written Covenant Not to Compete?
Confidential information isn’t just information that is “highly classified”. It can also be broader than trade secrets, including information acquired through the course of employment as a result of the employee’s relationship with his/her employer. Whether information is “confidential” is based on whether legal protection should be recognized and protected by the courts on behalf of the employer against disclosure of important business methods, records, and customer lists. Although customer lists are not always protected in every business or industry sector, in certain industries, they are deemed protectable under New Jersey law.
In addition, when an employee is intimately involved with the creation and/or development of products and systems, etc., and his/her knowledge is sufficiently detailed that he/she could duplicate those products or services from memory, a NJ court may afford injunctive relief in order to protect the employer’s interest.
Is Raiding a Competitor’s Employee(s) Actionable in NJ?
Can you recruit a co-worker or a key employee of a competitor in New Jersey after you leave the employer’s workplace? The answer is tricky and very fact and business-specific. Employers need to be cautious and take a close look at how they have treated their employee(s), because a court may refuse to grant the employer relief if the employer has treated the employee(s) unfairly and the employee (s) leave for a competitor.
Generally, a former employee may solicit their former co-workers, and any competitor may recruit your employees, provided they do not induce co-workers to breach an employment contract or cause excessive harm to the employer when multiple employees resign en masse. In a reported NJ case, a competitor was found to have tortiously interfered with a target company’s economic advantage by hiring all of the target company’s door-to-door sales force. The competitor had secretly targeted the company’s district manager, who, in turn, solicited his salespeople while still employed by the target company. The court found that this deception, combined with the “planned campaign of mass recruiting,” constituted malicious interference, which entitled the targeted company to relief.
Can a non-compete agreement be enforced after an employee is terminated?
In many cases, yes—but enforceability depends on the circumstances. New Jersey courts evaluate whether the agreement protects legitimate business interests, whether its restrictions are reasonable in duration and geographic scope, and whether enforcement would impose undue hardship on the former employee. Termination without cause can sometimes affect how a court views enforcement.
How long can a non-compete agreement last in New Jersey?
There is no fixed statutory time limit, but courts generally require that the duration be reasonable, taking into account the industry and the employer’s legitimate business interests. Many enforceable agreements range from several months to two years, depending on the circumstances.
Are non-compete agreements enforceable against independent contractors?
Yes, restrictive covenants may apply to independent contractors as well as employees. Courts analyze similar factors—legitimate business interest, reasonable scope, and fairness—when determining enforceability.
What qualifies as a legitimate business interest?
Courts commonly recognize protection of trade secrets, confidential business information, customer relationships, goodwill, and specialized training provided by the employer as legitimate interests that may justify a restrictive covenant.
Can a court modify an overly broad non-compete agreement?
Yes. New Jersey courts may apply the “blue pencil” doctrine, meaning they can modify or narrow an overly broad agreement rather than voiding it entirely. However, relying on judicial modification can be risky, which is why careful drafting is essential.
What is the difference between a non-compete and a non-solicitation agreement?
A non-compete agreement restricts a former employee from working for, or starting, a competing business within a specified geographic area and timeframe. A non-solicitation agreement is narrower and typically prevents the former employee from soliciting customers, clients, or employees of the former employer. Non-solicitation agreements are often easier to enforce because they are more narrowly scoped.
Can non-compete agreements apply to business owners who sell their company?
Yes. Non-compete provisions are common in business sale transactions to prevent the seller from immediately competing with the buyer. Courts are often more willing to enforce broader restrictions in the sale-of-business context than in employment settings.
What defenses are available if I am accused of violating a non-compete?
Possible defenses may include arguing that the agreement is overly broad, lacks consideration, does not protect a legitimate business interest, or imposes undue hardship. Each case depends on its specific facts, and early legal representation is critical.
Should I sign a non-compete agreement before consulting an attorney?
It is strongly recommended to consult an experienced business attorney before signing any restrictive covenant. These agreements can significantly impact your future employment opportunities and earning potential.
What should employers consider before requiring employees to sign a non-compete?
Employers should ensure the agreement is narrowly tailored, supported by adequate consideration, and consistent with current New Jersey law. Overly aggressive restrictions may be challenged and could undermine enforceability.
WHAT ABOUT THE OFFICERS, DIRECTORS, AND HIGH-LEVEL EMPLOYEES OF AN NJ CORPORATION OR NJ BUSINESS; WHAT OPTIONS DO THEY HAVE?
Officers, directors, and high-level employees may also have a duty not to compete unfairly with their employer. In fact, a “key employee” is often looked at differently by the courts. Breaches of confidentiality by a key or senior employee with access to private information, marketing plans, and business strategies will be treated differently from those of other lower-level employees. Officers, directors, and high-level employees also have the right to change employers and careers without legal liability to their former employer. If you are an upper-level employee, officer, or someone with significant influence in the enterprise, and you are subject to a “Covenant Not to Compete” clause in an employment contract, contact me immediately to discuss your options and strategies.
Fredrick P. Niemann Esq.
The attorneys associated with Fredrick P. Niemann, Esq. and the Hanlon Niemann law firm are experienced covenant not to compete attorneys.
Non-compete and non-competition agreements must strike a careful balance between protecting legitimate business interests and complying with New Jersey’s reasonableness standards. Whether you are an employer seeking to draft or enforce a restrictive covenant, or an employee evaluating or defending against one, experienced legal guidance can make a significant difference. Contact Fredrick P. Niemann of Hanlon Niemann & Wright to discuss your situation and protect your rights. He can be reached at (732)-863-9900 or by emailing him at fniemann@hnlawfirm.com. Let our employment law experience work for you. We are available to advise and assist you.
Written by Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a New Jersey Covenant Not to Compete Attorney serving these New Jersey Counties:
Monmouth County, Ocean County, Essex County, Cape May County, Camden County, Mercer County, Middlesex County, Bergen County, Morris County, Burlington County, Union County, Somerset County, Hudson County, Passaic County