Court Opinion

ID: 9732376
Source: CourtListenerOpinion
Date Created: 2023-08-26 16:18:21.665262+00
Date Added: 2024-06-11T18:26:26.952817
License: Public Domain

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 *449clear mandate of public policy that the majority, in adopting the dissent below, fails to apprehend, I must respectfully dissent.
I.
This ease comes to the Court on a motion to dismiss for failure to state a claim. Therefore, the facts as alleged in the complaint, as well as all reasonable inferences to be drawn therefrom, must be taken as true. Craig v. Suburban Cablevision, Inc., 140 N.J. 623, 625-26, 660 A.2d 505-06 (1995).
In 1997, plaintiff Karol Maw began working for defendant Advanced Clinical Communications, Inc., as a graphic designer. Plaintiff had been performing well enough to warrant a promotion to the position of Senior Graphic Designer in January 2000. Thereafter, pursuant to a new company policy promulgated in January 2001, defendant required all of its employees at or above the level of “coordinator” to sign a non-eompete agreement as a condition of continuing employment. Among other things, it provided that upon ceasing to work for defendant, the employee would be enjoined from working for any competitor or customer of defendant for a period of two years.
Plaintiff was presented with a copy of the proposed “Noncompete Covenant,” which informed her that she was free to seek the advice of counsel with respect to the document. Plaintiff consulted her father, an attorney, who suggested some changes. Plaintiff presented those revisions to defendant’s Human Resources Department. A representative of that department informed her, however, that “it is the President’s [cjompany and ... he is not going to make any exceptions.” Plaintiff did not sign the document, prompting defendant to inform her by letter that she had been “terminated based on noncompliance with company policy.”
Plaintiff filed suit, claiming that her employer violated CEPA and the common-law right against termination in violation of a clear mandate of public policy. Defendant moved to dismiss the claim for failure to state a claim upon which relief can be granted. R. 4:6-2(e). The Law Division granted the motion, finding that *450the complaint failed to aver a sufficient public-policy interest within the meaning of CEPA and that, similarly, it lacked the requisite showing to state a claim under the common law.
The Appellate Division reversed. Maw v. Advanced Clinical Communications, Inc., 359 N.J.Super. 420, 820 A.2d 105 (2003). It held that the Law Division erred in concluding that as a matter of law, plaintiff did not demonstrate a violation of public policy necessary to sustain a cause of action. Id. at 427, 820 A.2d at 109. Instead, because the agreement proffered by defendant “may, depending on the surrounding circumstances, violate the public policy necessary to support a cause of action under CEPA[,]” the court ruled that “dismissal of plaintiffs claims before she had an opportunity to develop her case through discovery was premature.” Ibid. For similar reasons, the court also reinstated plaintiffs common-law claim for wrongful discharge in violation of public policy, as recognized in Pierce v. Ortho Pharmaceutical Corp., 84 N.J. 58, 72, 417 A.2d 505, 512 (1980).1 Id. at 441, 820 A.2d at 117-18.
The dissent, however, stated that the Law Division did not err in dismissing the complaint, because “an employee’s interest in freely moving from employer to employer is primarily a private interest beyond the protection provided by CEPA” Id. at 442, 820 A.2d at 118 (Cuff, J.AD., dissenting). Consequently, the dissent viewed the matter as “essentially a private dispute between an employer and an employee.” Id. at 448, 820 A.2d at 122. Determining no clear mandate of public policy to be at issue, the dissent *451concluded that plaintiff failed to state a claim under either CEPA or the common law. Ibid.
Because of the dissent in the Appellate Division, defendant appealed as of right. R. 2:2-1(a)(2). This Court now adopts the analysis of the dissent below, finding no clear mandate of public policy sufficient to render this matter anything but a dispute merely “private in nature.” Ante 179 N.J. at 445, 846 A.2d at 608. A brief look at the public-policy considerations that have traditionally governed non-eompete agreements reveals, however, that this matter does, in fact, give rise to serious public-policy concerns that transcend a mere private dispute.
II.
A.
The Conscientious Employee Protection Act provides, in pertinent part, that
[a]n employer shall not take any retaliatory action against an employee because the employee ... [o]bjects 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 the public health, safety or welfare or protection of the environment.
[N.J.S.A. 34:19-3 (emphasis added).]
The elements necessary to state a claim for wrongful termination under that provision of CEPA are not in dispute. A plaintiff
must demonstrate that: (1) he or she reasonably believed that his or her employer’s conduct was violating either a law, rule, or regulation promulgated pursuant to law, or a clear mandate of public policy; (2) he or she performed a “whistle-blowing” activity described in N.J.S.A. 34:19 — 3c; (3) an adverse employment action was taken against him or her; and (4) a causal connection exists between the whistle-blowing activity and the adverse employment action.
[Dzwonar v. McDevitt, 177 N.J. 451, 462, 828 A.2d 893, 900 (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., *452entering 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, 828 A.2d at 901.
B.
For more than four hundred years, Anglo-American jurisprudence has recognized the public-policy implications of non-compete agreements. See Harlan M. Blake, Employee Agreements Not to Compete, 73 Harv. L. Rev. 625, 635-36 (1960) (tracing jurisprudence of post-employment restraints to Dyer’s Case in Court of Common Pleas in 1414 and first public-policy explanation for invalidating them to Colgate v. Bacheler, decided by Queen’s Bench in 1602). In the “most cited case on common-law restraints of trade,” and perhaps the most influential opinion on the subject ever issued, Chief Justice Parker of Queen’s Bench explored the interests, both public and private, at stake when a citizen contracts away his right to work at his chosen craft. Blake, supra, 73 Harv. L. Rev. at 629 (citing Mitchel v. Reynolds, 24 Eng. Rep. 347 (Q.B. 1711)).
In Mitchel, the defendant leased some buildings including a bakehouse to the plaintiff. 24 Eng. Rep. at 347. The terms of their agreement included a provision that the defendant would “not exercise the trade of a baker” within the parish of St. Andrew’s Holborn during the five-year term of the lease. Ibid. If the defendant were to violate the term, and set up a competing shop, the plaintiff would be entitled to fifty pounds. Ibid. The plaintiff brought suit to enforce the provision; the defendant, however, maintained that the agreement was void. Ibid.
*453Examining prior case law, the Chief Justice discerned the various interests implicated by voluntary restraints of trade. Id. at 350. He observed that such agreements can result in “mischief ... to the party, by the loss of his livelihood, and the subsistence of his family ... [and] to the publiek, by depriving it of a[ ] useful member.” Ibid. The court then further explained the aggregate harm occasioned by such restrictions that extends beyond the concerns of the contracting parties:
Another reason is, the great abuses these voluntary restraints are liable to; as for instance, from corporations, who are perpetually labouring for exclusive advantages in trade, and to reduce it into as few hands as possible; as likewise from masters, who are apt to give their apprentices much vexation on this account, and to use many indirect practices to procure such bonds from them, lest they should prejudice them in their custom, when they come to set up for themselves. [/6td]
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]nforee[.]” 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 neighborhood.” 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 *454[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, 7 A. 37, 38-39 (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, 7 A. at 38. 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, 7 A. at 39.]
In another case involving a non-eompete 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 *455Industries, Inc. v. Malady, 55 N.J. 571, 576, 264 A.2d 53, 56 (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. Ingersolb-Rand Co. v. Ciavatta, 110 N.J. 609, 628, 542 A.2d 879, 888 (1988); Karlin v. Weinberg, 77 N.J. 408, 411-12, 390 A.2d 1161, 1163-64 (1978); Whitmyer Bros., Inc. v. Doyle, 58 N.J. 25, 32, 274 A.2d 577, 580-81 (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, 542 A.2d at 892.
This brief historical overview demonstrates that vindication of the public interest has consistently been at the heart of our interpretation of eovenants-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, 264 A.2d at 60-61, it misconstrues the import of that holding. Ante 179 N.J. at 446-48, 846 A.2d at 608-09. 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. *456The majority’s conclusion in that regard and its claim that I am somehow arguing restrictive covenants “are, or should be, per se illegal,” ante 179 N.J. at 447, 846 A.2d at 609, both appear to stem from a fundamental misunderstanding of the “per se” rule in preSolari 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, 264 A.2d at 59-60. 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, 264 A.2d at 59-60. 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, 264 A.2d at 59-60. 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, 264 A.2d at 60-61.
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, 7 A. at 38-39 (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, *457however, neither Solan 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.
III.
In spite of the manner in which non-compete agreements consistently have been viewed, the majority adopts the assessment of the dissent below that “an employee’s interest in freely moving from employer to employer is primarily a private interest beyond the protection provided by CEPA,” Maw, supra, 359 N.J.Super. at 442, 820 A.2d at 118 (Cuff, J.A.D., dissenting), and, therefore, the present matter involves “essentially a private dispute between an employer and an employee.” Id. at 448, 820 A.2d at 122. The difficulty with that approach is that it does not reckon with, much less reconcile, the vital public-policy considerations that undergird the jurisprudence of non-compete agreements. Simply put, for centuries the courts of England and of this State have stated repeatedly that covenants-not-to-compete implicate important pub-lie-policy interests. If there is any continuing truth to that notion, then a plaintiff who claims that she resisted signing an agreement that she believed to violate that public policy cannot be summarily cast out of court on the ground that her concerns constitute only a private dispute with her employer. In embracing such a rationale, the majority disserves both the remedial purpose of CEPA as well as the honorable tradition of protecting the free markets of this State. To be sure, as in all “private-sector” disputes, a private interest is involved. Here, however, the controversy clearly implicates long-established public concerns.
Defendant’s alternative argument in support of its motion to dismiss proves equally unpersuasive. It posits that until it attempts to enforce the agreement, there is no way of telling whether or not the restriction is unreasonable. Thus, the argument runs, plaintiff could not have held a reasonable belief that *458the covenant was in violation of public policy until the employer attempted enforcement. In support of that theory, defendant places particular weight on the clause of the proffered agreement that provides that permission to allow employees to work elsewhere will not be unreasonably withheld. The majority of this Court implicitly embraces that argument by observing that the deprivation of a CEPA cause of action does not leave plaintiff without a remedy inasmuch as she “was free to dispute the reasonableness [of the non-compete agreement] if and when her employer attempted to enforce the agreement.” Ante 179 N.J. at 448, 846 A.2d at 609.
That reasoning stumbles on a number of levels. First, in stating that this employee was free to challenge this restrictive covenant in another forum, the majority fails to acknowledge that traditional contract remedies are inadequate to vindicate the public interest at stake in this type of dispute. Absent a cause of action under CEPA or the common law’s public-policy exception to termination of an at-will employee, nothing prevents an employer from demanding that such an employee agree to the most unreasonably restrictive non-compete agreement as a condition of continuing employment. Should the employee refuse, today’s holding allows the employer to terminate with impunity and leaves the employee but one avenue of real relief: find another job.
Second, the majority’s approach ignores the obvious in terrorem effect such covenants have in restricting employee mobility. As plaintiffs counsel suggested at argument, once an employee has affixed his or her signature, the employer has derived its sought-after benefit, irrespective of whether a court ultimately deems the covenant reasonable or not. New are the employees with the resources — or, for that matter, the prospective employers with the inclination — to effectively challenge even the most patently unreasonable restrictive covenant.
Third, as noted, the fundamental policy and law in this State is that covenants-not-to-compete are in violation of public policy until proven otherwise — that is, until the employer demonstrates that *459they are reasonable. Consistent with that approach, in the CEPA context, as in common-law or equitable actions treating such agreements directly, the employer should bear the burden of demonstrating that in the circumstances of a particular case, the proffered agreement would have been enforceable as a reasonable restriction. In the CEPA context, as in the more traditional common-law scenario, that presents a question for the court. In either setting, however, that determination cannot be made on the pleadings. Although it is a question for the bench and not the jury, it constitutes an inquiry that must be made in conjunction with a review of the relevant facts. The outcome will hinge on, among other things, the legitimate business interests of the employer that are to be served by the restriction in relation to the geographic, temporal, and substantive restraints placed upon the employee. Although such an inquiry may prove possible at the summary-judgment stage of the proceedings — at which time, the employer may well prevail — a court bound by the averments of a complaint cannot make such a ruling on a motion to dismiss.
Accordingly, the better approach, which would adequately safeguard the concerns of the employer while simultaneously vindicating the public interest, would be to hold that a plaintiff has stated a claim under CEPA when she has alleged that she refused to sign a non-compete agreement that she believed to be in violation of public policy. The employer would then be afforded the opportunity to demonstrate the reasonableness of the proffered agreement as a defense to the action. On that basis, I would affirm the judgment of the Appellate Division and allow the complaint to go forward.
I am aware of the concern by some that allowing a cause of action in these and similar circumstances might have a chilling effect on employers’ legitimate use of non-compete agreements, but that argument is unavailing. The approach I propose would have the salutary effect of encouraging employers to enter into agreements that comply with, rather than flout, sound public policy. Employers who do draft restrictive covenants tailored to *460serve their legitimate business interests can be confident of prevailing against a subsequent challenge for wrongful dismissal under CEPA or the common law should they choose not to retain an at-will employee who refuses to agree to reasonable terms. Moreover, such employers will be able to enforce executed agreements incorporating those terms in a court of equity. Conversely, the fact that illegitimate agreements will be disfavored should present no cause for concern.
IV.
In sum, I would hold that plaintiff 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. Plaintiff claims that she acted on the bona fide belief that her employer, in asking her to enter the agreement at issue here, sought to restrain her future employment without a legitimate reason and, thereby, violated that public policy. Consistency with our jurisprudence respecting non-compete agreements demands that employers should bear the burden of demonstrating that those suspect arrangements are reasonable in the circumstances of an individual case. Because this defendant has not done so and, indeed, cannot possibly have made such a showing on a motion to dismiss, I would affirm the judgment of the Appellate Division and remand the cause for further proceedings.
Justice LONG joins in this opinion.
For reversal — Chief Justice PORITZ and Justices VERNIERO, LaVECCHIA and WALLACE — 4.
For affirmance — Justices LONG and ZAZZALI — 2.

 Because the same test concerning the requisite demonstration of public policy applies under Pierce, the Appellate Division held that plaintiff stated a claim under the common law. Maw, supra, 359 N.J.Super. at 441, 820 A.2d at 117-18. The court went on to address the exclusivity provision of CEPA. It found that although a plaintiff who pursues a CEPA claim must forego a common-law claim, it would be unjust to force a party into making that decision at the pleading stage of the proceedings before a court has determined whether either action may lie. Ibid. I find both aspects of the Appellate Division’s reasoning to be sound and, therefore, subsume the common-law cause of action into my analysis of the CEPA claim.