STANDARD REGARDING RESTRICTIVE COVENANTS IN THE STATE OF NEW JERSEY
Our Appellate Division has recently taken the opportunity to comment on the standard of reviewing non-competition agreements in the State of New Jersey. In Maw v. Advanced Clinical Communications, Inc., 359 N.J. Super. 420 (App. Div. 2003), the Court stated as follows:
Noncompetition agreements are looked upon unfavorably by the courts, as potential restraints on trade. Laidlaw, Inc. v. Student Transp. of Am., Inc., 20 F. Supp. 2d 727, 757 (D.N.J. 1998); and see Whitmyer Bros., Inc. v. Doyle, 58 N.J. 25, 33-34, 274 A.2d 577 (1971) (citing to New Jersey's Antitrust Act, N.J.S.A. 56:9-1 to -19, for proposition that employers have no legitimate interest in using such agreements solely to prevent competition). To be enforceable, a restrictive covenant must be reasonable under the circumstances. Graziano v. Grant, 326 N.J. Super. 328, 343, 741 A.2d 156 (App. Div. 1999). A restrictive covenant is reasonable if it protects the legitimate interests of the employer, imposes no undue hardship on the employee, and is not injurious to the public. Whitmyer Bros., supra, 58 N.J. at 32-33; Solari Indus., Inc. v. Malady, 55 N.J. 571, 576, 264 A.2d 53 (1970); Schuhalter v. Salerno, 279 N.J. Super. 504, 508, 653 A.2d 596 (App. Div.), certif. denied, 142 N.J. 454, 663 A.2d 1361 (1995); Coskey's Television & Radio Sales and Serv., Inc. v. Foti, 253 N.J. Super. 626, 633-34, 602 A.2d 789 (App. Div. 1992); Raven v. A. Klein & Co., Inc., 195 N.J. Super. 209, 213, 478 A.2d 1208 (App. Div. 1984).
"The first two parts of the Solari/Whitmyer test focus on the protection of the legitimate interests of the employer and the extent of the hardship on the employee." Ingersoll-Rand Co. v. Ciavatta, 110 N.J. 609, 634-35, 542 A.2d 879 (1988). "The court must balance these competing interests." Id. at 635. When an employer's interests are strong, as seen in cases involving trade secrets or confidential information, a court will enforce a restrictive covenant; however, when the employer's interests "do not rise to the level of a proprietary interest deserving of judicial protection, a court will conclude that a restrictive agreement merely stifles competition and therefore is unenforceable." Ibid. A court will not enforce restrictive covenants "principally directed at lessening competition." Raven, supra, 195 N.J. Super. at 213.
The third part of the Solari/Whitmyer test relates to the public interest. Ingersoll-Rand, supra, 110 N.J. at 639. "The public has a clear interest in safeguarding fair commercial practices and in protecting employers from theft or piracy of trade secrets, confidential information, or, more generally, knowledge and technique in which the employer may be said to have a proprietary interest." Ibid.
