Source: https://www.connellfoley.com/newsroom-news-restrictive-covenants-and-nondisclosure-terms-in-employment-contracts-under-new-jersey-law
Timestamp: 2019-04-18 21:03:05+00:00

Document:
Contractual agreements that restrict the post employment activities of employees are generally subject to enforcement under New Jersey law provided established criteria are satisfied. In the employment context, restrictive covenants have been utilized to prohibit employees from revealing confidential, proprietary information and/or trade secrets of the employer after the termination of employment; to prohibit the former employee from competing with the employer and barring individuals from soliciting the clients or other employees of a former employer.
(3) the covenant is not injurious to the public interest.
Solari Industries, Inc. v. Malady, 55 N.J. 571, 581 (1970). Covenants are subject to enforcement in whole or in part to the extent they satisfy the established criteria of reasonableness.
The first factor to be evaluated in assessing the enforceability of a restrictive covenant is whether the provision in question protects a legitimate interest of the employer. It is plain, however, that a restraint which intended solely to aid the employer in preventing business competition is not directed to a legitimate interest and is therefore unenforceable. See Ingersoll-Rand Co. v. Ciavatta, 110 N.J. 609, 634 (1988); Ellis v. Lionkis, 162 N.J. Super. 579, 585 (App. Div. 1978)("a restraint against competition is invalid when its sole purpose is to prevent competition, for it does not protect any legitimate interest of the employer and therefore is not reasonable.").
The ongoing professional relationship between an employer and its clients is generally established as a legitimate business interest that is subject to protection through a restrictive covenant. Whitmyer Bros., Inc. v. Doyle, 58 N.J. 25, 33 (1971); Mailman, Ross, Toyes, & Shapiro v. Edleson, 185 N.J. Super. 434 (Ch. Div. 1982). Note, however, that an employee may not be restrained from continuing relationships with customers that the employee developed prior to his or her employment. Coskey’s T.V. & Radio Sales v. Foti, 253 N.J. Super. 626 (App. Div. 1992).
Employers have legitimate interests in trade secrets and confidential business information through the use of restrictive covenants. Ingersoll-Rand Co. v. Ciavatta, 110 N.J. 609 (1988); Raven v. A. Klein & Co., 195 N.J. Super. 209 (App. Div. 1984).
The protection of unique methods and procedures utilized by a business are a legitimate interest that will justify restrictive covenants with company employees. Raven v. A. Klein & Co., Inc., 195 N.J. Super. 209, 214 (App. Div. 1984).
The second factor that the courts will consider with regard to the enforceability of a restrictive covenant is the reasonableness of the duration and scope of the restrictions to be imposed upon the employee. In this regard, the courts have generally held that enforcement will not issue as to restrictions that pose an undue hardship on former employees.
Absent extenuating circumstances the personal inconvenience and financial hardship of the employee do not rise to the level of undue hardship. Karlin v. Weinberg, 77 N.J. 408, 417-18 n.3 (1978). However, the inability of the employee to find other employment in his or her area of expertise/experience is a factor which has been considered by one court to be a factor which may rise to the level of undue hardship. Id. at 423.
w The time period for which the restraints will be in effect.
The reasonableness of a geographic restraint in a restrictive covenant is largely a function of the character of the business at issue and the relative competitive market. See Chas. S. Wood & Co. v. Cain, 42 N.J. Super. 122, 127 (App. Div. 1956). To that end, where the geographic area specified in the covenant is closely related to the area in which the employer regularly conducts its business, the prospect of the provision being enforceable increases.
In the absence of a specified geographic area of restraint is not necessarily a fatal flaw as the court may interpret the covenant so as to impose a reasonable area of restraint. Mailman, Ross, Toyes & Shapiro v. Edelson, 183 N.J. Super. 434, 440 (Ch. Div. 1982). Moreover, a geographic area need not be specified where the covenant is directed to preserving existing relationships rather than protecting an employer’s geographic area of operation. Schuhalter v. Salerno, 279 N.J. Super. 504, 511 (App. Div.), certif. denied, 142 N.J. 454 (1995); Platinum Mgt., Inc. v. Dahms, 285 N.J. Super. 274, 299 (Law Div. 1995).
The degree to which the court will evaluate the reasonableness of the time period for which a former employee must submit to a restrictive covenant is largely a function of what the facts will support as being reasonably necessary to protect the legitimate interests of the employer. As a matter of course, restrictive covenants with durations of two (2) years are commonly sustained. See Schuhalter v. Salerno, 279 N.J. Super. 504 (App. Div.), certif. denied, 142 N.J. 454 (1995); A.T. Hudson v. Donovan, 216 N.J. Super. 426 (App. Div. 1985). Coordinate with recent developments in business and industry, particularly information technology and computer industries, some courts have measured the time period of restraints against the rapidly evolving nature of the subject business. See Earth Web Inc. v. Schlack, 71 F.Supp.2d 299 (S.D.N.Y. 1999), remanded, 205 F.3d 1322 (2d Cir.), aff’d, 2000 USApp LEXUS 11446 (2d Cir. N.Y. May 18, 2000)(holding one year covenant in internet company officer’s employment to be "too long given the dynamic nature of the [information technology] industry … and Schlack’s former cutting-edge position with Earth Web where his success depended on keeping abreast of daily change in content on the Internet."). Double Click v. Henderson, 1997 W.L. 731413, No. 116914/97 (N.Y. Co.Ct. Nov.7, 1997)(reducing one year covenant to six months in light of the rapidly changing field of internet advertising).
This final factor in the assessment of restrictive covenants is of concern largely in connection with agreements involving individuals offering professional services. In such cases, the concern rests with the effect of the restraints upon those clients of the professional who may unilaterally decide to move their business with that individual when he or she moves to other employment. See Karlin v. Weinberg, 77 N.J. 408 (1978)(physicians); Mailman, Ross, Toyes & Shapiro v. Edelson, 183 N.J. Super. 434 (Ch. Div. 1982)(accountants); Dwyer v. Jung, 133 N.J. Super. 343 (Ch. Div. ), aff’d o.b., 137 N.J. Super. 135 (App. Div. 1975)(attorneys).
A court in evaluating the enforceability of a restrictive covenant is vested with the discretion to enforce only so much of the agreement as it finds reasonable. Provisions that are unreasonable will not be enforced and, where the court finds the agreement to be deliberately oppressive, the court may invalidate it in its entirety. Solari Industries Inc. v. Malady, 55 N.J. 571, 585 (1970).
An essential predicate to enforcement of a restrictive covenant is an enforceable agreement. Accordingly, the agreement must be drafted with an eye toward the legal standards, as well as anticipated avenues of challenge.
Specify the confidential information or other interests of the employer that warrant protection and provide for an acknowledgment by the employee of the need to protect such information.
Specify applicable time periods and geographic territories that are both reasonable and justifiable.
To the extent there exists any interest which might arguably be beyond the scope of the restrictive covenant, such as pre-existing customer relationships of the employee, a comprehensive list of such items should be included.
Include a provision that the employee agrees to the payment of reasonable attorneys fees and costs that may be incurred by the employer in seeking to enforce the agreement in the event of a breach by the employee.
Specify the applicable law that will govern the interpretation and enforcement of the agreement.
Specify that the employer will enforce the agreement through injunction and that the employee acknowledges that a breach of the covenant will result in irreparable harm.
The trade secrets and confidential proprietary information of an employer may be protected from disclosure by employees through non disclosure/confidentiality agreements. Such agreements are commonly used by employers to preserve the confidentiality of technical information, data and specialized know-how that afforded a competitive advantage in the market place.
A trade secret may consist of a formula, process, device or compilation used by one business to secure an advantage over competitors who do not know or use it. Sun Dial Corp. v. Rideout, 16 N.J. 252, 257 (1954). Accordingly, the protection form compelled production that extends to trade secrets has been extended to pricing information, formulas, business strategies, client demographics and customer marketing materials.
The extent to which the process of duplicating the subject information would be easy or difficult for others to undertake.
Ingersoll-Rand vs. Caviatta, 110 N.J. 609, 637 (1988); see 4 Rest. Torts §757.
While an employer is entitled to protect its trade secrets and other confidential information from disclosure, it may not restrict the facility, skill or experience learned or developed during an employee’s tenure with an employer. Ravin v. A. Klein & Co., Inc., 195 N.J. Super. 209, 213-14 (App. Div. 1985).
The employer took precautions to maintain the secrecy of the trade secret.
Rycolin Products Inc. v. Walsh, 334 N.J. Super. 62, 74 (App. Div.), certif.
denied, 165 N.J. 678 (2000).
u The Economic Espionage Act of 1996, 18 USC §1831-39. Individuals who misappropriate an employer’s trade secrets may be subject to federal prosecution and subject to imprisonment for up to 10 years, a substantial fine or both.
u The National Stolen Property Act, 18 USC § 2314-15. The use of the mail or other means to transport stolen trade secrets across state lines may expose former employees to federal criminal liability.
u N.J.S.A. 2C:20-1i (defining "trade secret" in connection with statutory provisions relating to "theft and related offenses.").
The doctrine of inevitable disclosure is an evolving development in the area of trade secret protection that may apply to enjoin an employee from disclosing a former employer’s confidential information and trade secrets to a competitor even in the absence of a restrictive covenant. Significantly, the inevitable disclosure document does not require proof that the former employee actually removed trade secret information or is actually using or even intends to use the trade secret information to benefit his new employer. Rather, injunctive relief may issue where there exists a sufficient basis for the court to infer that duties and responsibilities attendant the former employee’s new position with a competitor will "inevitably cause the individual to reveal the former employer’s trade secrets even in the absence of ill-will or improper motive." The doctrine of inevitable disclosure may thus serve as a basis to enjoin a former employee from working for a competing entity where there exists a rational basis for the court to conclude that restraints are necessary to prevent the disclosure of confidential information retained in the memory of the employee to which the employee will inevitably resort to fulfill the duties and responsibilities for his new employer. See National Starch and Chem. Corp. v. Parker Chem. Corp., 219 N.J. Super. 158, 162-63 (App. Div. 1987); Pepsico, Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995).
To assure the highest level of protection for trade secrets and proprietary information, employers should institute a comprehensive program of procedures and measures directed to preserving the confidentiality and safeguarding the information.
Screen presentations, speeches, web sites and business articles for trade secrets.
Caution employees about transmitting confidential information over the Internet.
The potential remedies available as redress for the breach of a restrictive covenant or nondisclosure agreement include both equitable and legal relief, the application of which will turn largely upon the facts present, conduct of the parties and the strategic interests/needs of the plaintiff employer.

References: v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 §757
 v. 
 v. 
 §1831
 § 2314
 v. 
 v.