Restrictive Covenants

Restrictive covenants are agreements between an employer and employee in which the employee agrees to have her freedom of action limited in some way. They are often, but not always, contained in employment contracts. Our employment attorneys help New Jersey employees negotiate restrictive covenants, and represent them in post-employment litigation over restrictive covenants.

Examples of Restrictive Covenants. There are many types of restrictive covenants, but these are a few examples.

• Non-compete Agreements. A restrictive covenant which prevents an employee from competing with her employer either while working with it or after she leaves is known as a “non-compete” or “non-competition” agreement. In 2024, the United States Department of Labor adopted regulations which will gradually eliminate post-employment non-compete agreements. However, lawsuits challenging the regulations have been filed, so it is still up in the air whether the regulations will actually ever go into effect. Until then, non-compete agreements are construed under New Jersey employment law. There are limits under New Jersey employment law on how restrictive a non-compete agreement can be. These limits limitations concern the scope of the non-compete agreements in time, geography, and type of work which is restricted. Our attorneys review non-compete for departing employees and counsel them on their rights. It is often possible to negotiate a release from a non-competition agreement.
• Non-Solicitation Agreements. Non-solicitation agreements generally fall into two categories. The first is that the employee agrees that she will not solicit any of the employer’s employees to leave the business. The second is that the employee agrees not to attempt to induce any of the employer’s customers or clients leave.
• Confidentiality and Non-Disclosure Agreements. Confidentiality agreements and non-disclosure agreements limit what an employee may discuss or disclose during and after her employment. Generally these cover trade secrets or proprietary information. Types of information typically covered by confidentiality and non-disclosure agreements include business plans, trade secrets, pricing, product development, designs, client lists and trademarks.

Enforceability of Restrictive Covenants. Restrictive covenants are generally enforceable. However, there are limits to their enforceability. They must meet the requirements of New Jersey employment law for restrictive covenants. To be enforceable, the covenant must protect an interest of the employer which New Jersey employment law considers legitimate, such as trade secrets, customer relations, client lists, personnel practices, confidential information, and the like. The restriction on the employee’s scope must also be reasonable in time and geography. Finally, it must not place an undue hardship on the employee. Also, restrictive covenants cannot violate public policy. If it meets these requirements, courts will generally enforce the restrictive covenant.

Restrictive Covenant Litigation. Litigation often occurs when an employer believes the employee has violated a restrictive covenant and tries to enforce it. The two main issues in such litigation is whether the restriction is enforceable, and whether the employee has breached it. Employers can seek injunctions to stop an alleged breach of the agreement, or to recover money damages after a breach occurred. If the agreement allows, the employer can also seek to have the employee pay its attorneys fees (some restrictive covenants provide that the winning side will get its fees paid for by the other, so sometimes an employee can recover her attorneys fees as well). Our New Jersey employment lawyers have extensive experience representing employees in litigation over restrictive covenants. However, even if the restrictive covenant violates one of the law’s restrictions, a court may exercise the “blue pencil” doctrine to remove the offending provision but uphold the rest of the terms of the restrictive covenant.

Negotiating Restrictive Covenants. Restrictive covenants are often contained in employment contracts signed when an employee is hired, or at some time thereafter. Generally, restrictive covenants can be negotiated as part of the negotiation of the overall employment contract. Our employment attorneys have significant experience negotiating restrictive covenants and employment contracts of all sorts.

Contact Us. If you have questions about your restrictive covenant, please e-mail us or call one of our New Jersey employment lawyers at (973) 890-0004.