Title: Karol Maw v. Advanced Clinical Communications, Inc.

State: new-jersey

Issuer: New Jersey Supreme Court

Document:

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized). Maw brought a claim under both the Conscientious Employee Protection Act (CEPA) and the common law for wrongful termination in violation of public policy. Maw claimed that ACCI committed impermissible retaliatory action when it terminated her employment because she refused to sign the agreement, which she believed to be contrary to public policy. ACCI moved before the Law Division to dismiss the complaint for failure to state a claim for which relief can be granted. On February 14, 2002, the Law Division granted ACCI s motion, finding that the complaint failed to assert a sufficient public-policy interest within the meaning of CEPA and, similarly, lacked the requisite showing to state a claim under the common law. A majority of the Appellate Division reversed, finding that the Law Division erred in concluding that, as a matter of law, Maw did not demonstrate a violation of public policy necessary to sustain a cause of action. The court held that the dismissal of Maw s claims before she had an opportunity to develop her case through discovery was premature. The majority panel also reinstated Maw s common-law claim for wrongful discharge in violation of public policy. One judge dissented, concluding that the Law Division did not err in dismissing Maw s claims because an employee s interest in freely moving from employer to employer is primarily a private interest beyond the protections of CEPA. The dissent found no clear mandate of public policy at issue and, therefore, concluded that Maw failed to state a claim under CEPA or the common law. ACCI appealed as of right to the Supreme Court based on the dissent in the Appellate Division. HELD: Maw s private dispute over the terms of the do-not-compete provision in her employment agreement does not implicate a violation of a clear mandate of public policy as contemplated by Section 3c(3) of CEPA. 1. The Court disagrees with and reverses the judgment of the Appellate Division substantially for the reasons expressed by the dissenting member of the appellate panel. The Court provides additional explanation of its conclusion that Maw has failed to state a cause of action under CEPA. (P. 2) 2. CEPA prohibits an employer from taking retaliatory action against an employee who objects to, or refuses to participate in any activity, policy or practice which the employee reasonably believes is incompatible with a clear mandate of public policy concerning public health, safety or welfare or protection of the environment. N.J.S.A. 34:19-3c(3) (Section 3c(3)). The Court must for the first time determine the contours and scope of a clear mandate sufficient to assert a claim under Section 3c(3) of CEPA. (Pp. 2-3) 3. The reference in Section 3c(3) to clear mandate of public policy conveys a legislative preference for conduct recognized to be in the public interest. A clear mandate of public policy suggests an analog to a constitutional provision, statute, and rule or regulation promulgated pursuant to law such that, under Section 3c(3), there should be a high degree of public certitude in respect of acceptable versus unacceptable conduct. Legislative intention concerning a clear mandate of public policy demonstrates a desire not to devolve into arguments between employers and employees over what is, or is not, correct public policy. The Court reaffirms the limiting principle enunciated in Mehlman that the complained of activity must have public ramifications and that the dispute between employer and employee must be more than a private disagreement. (Pp. 3-5) 4. Maw s dispute with ACCI is private in nature because the true dispute is over the terms of the non-compete agreement. Maw s CEPA claim also must fail because the State s public policy concerning 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. Do-not-compete provisions are not per se illegal; therefore it is inaccurate to describe current case law, which allows enforcement of reasonable non-compete agreements, as a clear mandate that disfavors such agreements. The application of the Solari/Whitmyer test to this case does not evoke the type of clear mandate of public policy that was contemplated by Section 3c(3). (Pp. 5-8) 5. If unable to negotiate acceptable terms, Maw is free to dispute the reasonableness of those terms and then ACCI would have the opportunity to try to enforce those terms through litigation. What the Court will not do is alter the traditional contract remedies available in restrictive-covenant litigation by recasting this dispute as a CEPA action. (Pp. 8-9) Judgment of the Appellate Division is REVERSED. JUSTICE ZAZZALI, dissenting, in which JUSTICE LONG joins, is of the view that Maw has set forth allegations in her complaint that state a claim for wrongful termination under both CEPA and the common law. There exists in this State a clear mandate that overly restrictive non-compete agreements violate public policy. Because ACCI has not and could not demonstrate that its non-compete agreement is reasonable, Justice Zazzali would affirm the decision of the Appellate Division. CHIEF JUSTICE PORITZ and JUSTICES VERNIERO, LaVECCHIA, and WALLACE join in this PER CURIAM opinion. JUSTICE ZAZZALI filed a separate dissenting opinion, in which JUSTICE LONG joins. JUSTICE ALBIN did not participate. Plaintiff-Respondent, v. ADVANCED CLINICAL COMMUNCIATIONS, INC., and MICHAEL F. FORTE, President, Advanced Clinical Communications, Inc., Defendants-Appellants. Argued February 2, 2004 Decided May 4, 2004 On appeal from the Superior Court, Appellate Division, whose opinion is reported at 359 N.J. Super. 420 (2003). Debbie Rodman Sandler argued the cause for appellants (White and Williams, attorneys). Richard M. Schall argued the cause for respondent (Schall & Barasch, attorneys; Mr. Schall and Patricia A. Barasch, on the briefs). Mark A. Saloman and John J. Sarno argued the cause for amicus curiae Employers Association of New Jersey (Proskauer Rose, attorneys; Marvin M. Goldstein, of counsel; Mr. Saloman, Mr. Sarno, Mr. Goldstein and Richard S. Reig, on the brief). Alan H. Schorr argued the cause for amicus curiae National Employment Lawyer s Association-New Jersey (Alan H. Schorr & Associates, attorneys). David M. Wissert submitted a brief on behalf of amicus curiae New Jersey Defense Association (Lowenstein Sandler, attorneys; Mr. Wissert, Lauren M. Hollender and Martha L. Lester, on the brief). PER CURIAM Plaintiff, Karol Maw, filed this action under the Conscientious Employment Protection Act, N.J.S.A. 34:19-1 to 8 (CEPA), after she was terminated for refusing to execute an employment agreement containing a do-not-compete provision. She claimed that her employer committed impermissible retaliatory action when it terminated her employment because she refused to sign an employment agreement that she perceived to be contrary to public policy. We disagree and reverse the judgment of the Appellate Division, substantially for the reasons expressed in the cogent dissent by Judge Cuff. Maw v. Advanced Clinical Communications, Inc., 359 N.J. Super. 420, 442-48 (App. Div. 2003) (Cuff, J.A.D., dissenting). Briefly, we add the following in explanation of our conclusion that plaintiff has failed to present a cause of action under CEPA. I. CEPA prohibits an employer from taking retaliatory action against an employee who objects to, or refuses to participate in any activity, policy or practice which the employee reasonably believes . . . is incompatible with a clear mandate of public policy concerning public health, safety or welfare or protection of the environment. N.J.S.A. 34:19-3c(3) (Section 3c(3)). In this case we confront for the first time a question as to the meaning of the phrase clear mandate of public policy. More specifically, we must determine the contours and scope of a clear mandate sufficient to assert a claim under Section 3c(3). We begin with the observation that a public policy expressed in the form of a statute, rule or regulation promulgated pursuant to law, is not what was meant under Section 3c(3). To so hold would reduce N.J.S.A. 34:19-3c(1) (Section 3c(1)) to mere surplusage, since it employs those legal precepts as a frame of reference for evaluating an employer s conduct. That said, Section 3c(1) is helpful in resolving the question before us. Like Section 3c(1), the reference in Section 3c(3) to a clear mandate of public policy conveys a legislative preference for a readily discernable course of action that is recognized to be in the public interest. A clear mandate of public policy suggests an analog to a constitutional provision, statute, and rule or regulation promulgated pursuant to law such that, under Section 3c(3), there should be a high degree of public certitude in respect of acceptable verses unacceptable conduct. Indeed, prior decisions involving CEPA claims have reasoned similarly when discussing Section 3c(3) claims. E.g., Higgins v. Pascack Valley Hosp., 158 N.J. 404, 420 (1999) (citing Mehlman v. Mobil Oil Corp., 153 N.J. 163, 189-90 (1998) (finding that CEPA prohibits employer retaliation against an employee who objects to an employer practice that violates a foreign country s public policy, as expressed in an industry safety guideline )). The legislative approach vis- -vis a clear mandate of public policy bespeaks a desire not to have CEPA actions devolve into arguments between employees and employers over what is, and is not, correct public policy. Such an approach also fits with the legislative requirement of a mandate as opposed to a less rigorous standard for the type of public policy that is implicated. The dissent below is in accord with our analysis in respect of its discussion of both the purpose of CEPA, Maw, supra, 359 N.J. Super. at 444-446 (Cuff, J.A.D., dissenting), and our precedent construing CEPA. Id. at 446-47. Judge Cuff s summary of CEPA s purpose echoes our observation last term that [t]he Legislature enacted CEPA to protect and encourage employees to report illegal or unethical workplace activities and to discourage public and private sector employers from engaging in such conduct. Dzwonar v. McDevitt, 177 N.J. 451, 461 (2003) (quoting Abbamont v. Piscataway Twp. Bd. of Educ., 138 N.J. 405, 431 (1994)). As stated in Dzwonar, supra, CEPA is designed to prevent retaliation against those employees who object to employer conduct that they reasonably believe to be unlawful or indisputably dangerous to the public health, safety or welfare. 177 N.J. at 464 (quoting Mehlman v. Mobil Oil Corp., 153 N.J. 163, 193-94 (1998) (emphasis added)). The dissent found that a helpful limiting principle [for CEPA claims] is that the offensive conduct must implicate the public interest. Maw, supra, 359 N.J. Super. at 446 (Cuff, J.A.D., dissenting) (citing Mehlman, supra, 153 N.J. at 187-88). [T]he offensive activity must pose a threat of public harm, not merely private harm or harm only to the aggrieved employee. Mehlman, supra, 153 N.J. at 188. We reaffirm the limiting principle enunciated in Mehlman that the complained of activity must have public ramifications, and that the dispute between employer and employee must be more than a private disagreement. KAROL MAW, Plaintiff-Respondent, v. ADVANCED CLINICAL COMMUNCIATIONS, INC., and MICHAEL F. FORTE, President, Advanced Clinical Communications, Inc., Defendants-Appellants. JUSTICE ZAZZALI, dissenting. As fully set forth in the majority opinion of the Appellate Division, the facts of this case concern an employee who was fired for refusing to sign a non-compete agreement. She brought suit against her employer, alleging that her termination violated the Conscientious Employee Protection Act (CEPA), N.J.S.A. 34:19-1 to -8, and her common-law right against discharge contrary to public policy. Because the allegations of the complaint implicate a clear mandate of public policy that the majority, in adopting the dissent below, fails to apprehend, I must respectfully dissent. [Dzwonar v. McDevitt, 177 N.J. 451, 462 (2003).] As in Dzwonar, the viability of the present claim hinges on whether the complaint satisfies the first prong of the four-prong test. That is, it appears clear that plaintiff meets the other three prongs because she refused to participate in an activity (i.e., entering into the agreement) and was fired as a direct consequence of that refusal. Thus, to survive a motion to dismiss, plaintiff need only set forth facts from which a factfinder ultimately could conclude that she acted on the basis of a reasonable belief that in demanding that she sign the non-compete agreement, her employer was violating a clear mandate of public policy. Ibid. And before a court can dismiss a CEPA claim as a matter of law, it must satisfy itself that no law, rule, or clear mandate of public policy closely relates to the complained-of conduct. Id. at 463. The court acknowledged the circumstances in which such restrictive arrangements might be useful and beneficial, for instance, to prevent a town from being overstocked with any particular trade or to facilitate the sale of a business or trade no longer profitable to its proprietor. Ibid. In weighing those competing considerations, however, the court concluded that the mischief plainly appears . . . but the benefit (if any) can only be presumed. Id. at 351. Underscoring the point that the mischief is not only private, but public, the court pronounced the rule to be that the law will presume such contracts prima facie to be bad until the facts of an individual case indicate that the restriction constitutes a reasonable and useful contract that the courts of justice will [e]nforce[.] Ibid. Applying the rule to the facts of that particular case, the court held that the plaintiff had overcome the presumption of invalidity because it would have been unjust to allow the defendant to receive the benefit of the lease agreement while permitting him to renege on his promise to allow the plaintiff to have the benefit of the trade in this neighbourhood. Id. at 352. Finding the restraint to be exactly proportioned to the consideration -- inasmuch as the five-year term of the restraint was coextensive with that of the lease -- the court determined the concern of the public [to be] equal on both sides, and held the restriction enforceable. Ibid. Thus, the court kept public, as well as private, concerns keenly within its focus throughout its analysis. Consistent with the approach in Mitchel, in New Jersey historically we have presumed such covenants to be invalid as restraints on trade and, therefore, violative of public policy unless an employer demonstrates the reasonableness of its agreement. Mandeville v. Harman, 42 N.J. Eq. 185, 189 (Ch. 1886). Mandeville involved a doctor who, in exchange for an employment opportunity with an established practitioner, permanently bargained away his right to practice for anyone else in the City of Newark. Id. at 187-88. As Vice Chancellor Van Fleet explained in refusing to enforce the agreement, the only covenants restricting employment that will be enforced are those in which the restraint is such only as to afford a fair protection to the interest of the party in favor of whom it is given, and not so large as to interfere with the interest of the public. Whatever restraint is larger than the necessary protection of the party can be of no benefit to either. It can only be oppressive, and if oppressive, it is, in the eye of the law, unreasonable and void, on the ground of public policy, as being injurious to the interests of the public. The rule, as thus stated, is the law of this state. [Id. at 190.] In another case involving a non-compete agreement, by which an employee had restrained himself, generally and absolutely, without limitation as to time or place, from exercising his talents and skill in making gig-saddles and coach-pads, Vice Chancellor Fleet held that such a contract is void, on account of its repugnancy to public policy. Albright v. Teas, 37 N.J. Eq. 171, 173 (Ch. 1883). Elaborating upon the public-policy implications of such a covenant, he explained, It prevents competition, and thus enhances prices, and exposes the public to all the evils of monopoly. Ibid. In more recent cases, we have echoed the concerns regarding restrictive covenants that originally were articulated in Mitchel, explicitly recognizing both the private and the public interests implicated by these restraints on trade. For instance, in Solari Industries, Inc. v. Malady, 55 N.J. 571, 576 (1970), we observed that public-policy considerations distinguish employee non-compete agreements from restrictions designed to protect the good will attendant to the sale of a business. We explained that although the latter are freely enforceable, the former will meet with judicial approbation only if they simply protect[] the legitimate interests of the employer, impose[] no undue hardship on the employee, and [are] not injurious to the public. Ibid. We subsequently reiterated that tripartite test, which expressly recognizes the public interest as distinct from the private concerns of the employer and employee. Ingersoll-Rand Co. v. Ciavatta, 110 N.J. 609, 628 (1988); Karlin v. Weinberg, 77 N.J. 408, 411-12 (1978); Whitmyer Bros., Inc. v. Doyle, 58 N.J. 25, 32 (1971). As we recognized in Ciavatta, not least among the public-policy considerations is the desire to protect the consuming public from naked restraints on the marketplace posed by employer attempts to extinguish competition from a former employee. 110 N.J. at 635. This brief historical overview demonstrates that vindication of the public interest has consistently been at the heart of our interpretation of covenants-not-to-compete. More is at stake than merely the isolated subjugation of a single worker. Although the undue hardship prong of Solari, supra, takes that consideration into account, our jurisprudence, time and time again, has made clear that such restraints of trade implicate other, public interests. Such repeated instruction by the judiciary amounts to a clear mandate that overly restrictive covenants in restraint of future employment are in violation of New Jersey public policy. Although the majority attempts to make much of this Court s rejection of the so-called per se rule in Solari, supra, 55 N.J. at 585, it misconstrues the import of that holding. Ante at ___ (slip op. at 7-9). Despite the majority s efforts to characterize Solari as a sea-change in our jurisprudence of non-compete agreements, it represents nothing of the sort. The majority s conclusion in that regard and its claim that I am somehow arguing restrictive covenants are, or should be, per se illegal, ante at __ (slip op. at 8), both appear to stem from a fundamental misunderstanding of the per se rule in pre-Solari case law. The majority s gloss notwithstanding, non-compete agreements were not as a general rule per se void prior to Solari. Instead, the per se rule concerned specifically the severability of non-compete agreements that were found to be unenforceable as written. 55 N.J. at 583. Prior to Solari, the courts of this State generally refused to reform and enforce such agreements to the extent that they otherwise might be reasonable. Id. at 583-84. In other words, if an employer failed to draft an agreement enforceable on its face, courts usually would not reform such a contract, even though a particular non-compete arrangement might be reasonable if enforced on terms less restrictive than as written. Id. at 583. Rather than re-write the contract for the parties, courts usually considered the inartfully drafted agreement to be void per se. Ibid. In Solari, however, we held that if an employer could demonstrate that its legitimate business interests would be protected, no undue harm would be visited on the employee, and that the public interest would not otherwise be injured, such a covenant would be enforced to the extent reasonable in time and space, despite the fact that it had been drafted in broader, unenforceable terms. Id. at 585. So understood, Solari does not represent a bold departure from prior case law treating non-compete agreements. Covenants not to compete were enforceable prior to our decision in that case. See, e.g., Mandeville, supra, 42 N.J. Eq. at 189-90 (1886 opinion instructing that non-compete agreements will be enforced if limited to restrictions necessary to protect interests of obligee and not so restrictive that they interfere with public interest). Solari merely extended the concepts of severability and reformation of contract to non-compete agreements. Most tellingly, however, neither Solari nor our subsequent cases removed the burden from the employer to demonstrate the reasonableness of non-compete agreements. And that burden continues to fall squarely on employers precisely because of the continuing public-policy concerns engendered by these restraints on trade. NO. A-99 SEPTEMBER TERM 2002 ON APPEAL FROM Appellate Division, Superior Court KAROL MAW, Plaintiff-Respondent, v. ADVANCED CLINICAL COMMUNICATIONS, INC., and MICHAEL F. FORTE, President, Advanced Clinical Communications, Inc., Defendants-Appellants. DECIDED May 4, 2004 Chief Justice Poritz PRESIDING OPINION BY Per Curiam CONCURRING OPINION BY DISSENTING OPINION BY Justice Zazzali