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Can businesses enforce non-compete agreements in New Jersey?

On Behalf of | Aug 11, 2023 | Employment Law |

Non-compete agreements have become the focus of increasing scrutiny from the public and policymakers in recent years. Some people claim that non-compete agreements and similar restrictive covenants deter competition and trap workers at businesses that may not pay them as they should or offer them the opportunities that they deserve.

The Federal Trade Commission (FTC) has indicated that it would like to pursue a federal ban on non-compete agreements, and New Jersey supports that effort. Despite those looming possible changes, there are many businesses that still have workers sign non-compete agreements when starting a new job and plenty of workers are already bound by such contract inclusions.

Some non-compete agreements are still enforceable in New Jersey

Whether or not the courts will uphold a non-compete agreement largely depends on the specific situation. The New Jersey courts can potentially uphold a non-compete agreement if someone who signed a contract with such inclusions goes on to start a business that competes with their former employer or leaves their job to accept a position with one of the company’s direct competitors. For the courts to side with the employer and enforce the agreement, the situation will need to meet a few standards. The first and most important is that the terms of the non-compete agreement will need to be reasonable and limited to some degree.

A non-compete agreement that applies globally and persists indefinitely is unlikely to hold up under court scrutiny. However, a non-compete agreement that only applies for a specific amount of time and a certain geographic region may be easier for a company to enforce in court. The employee should also have received something in return for giving up their right to compete. Oftentimes, a job offer or promotion is adequate compensation for such sacrifices.

Finally, there will need to be proof that the employee’s new entrepreneurial efforts or employment arrangements could potentially result in direct competition against their former employer. Should the courts rule in favor of an employer, they might uphold any penalties agreed to in the contract or order an employee to cease certain economic activity that violates the agreement.

Making sense of the nuanced rules that apply to non-compete agreements in New Jersey may benefit companies seeking to avoid unfair competition and also employees wanting to move on after leaving a job.