Those in sales and marketing positions might be most familiar with non-compete agreements, but there are many others who have been subject to this practice in the workforce. In fact, the Federal Trade Commission (FTC) estimates that as many as one in five have been subject to a non-compete. However, a recent rule banning this practice is changing the way corporations approach hiring and separating from employees.
What Exactly Is a Non-Compete Agreement?
A non-compete agreement is a contract that essentially prohibits an individual from seeking employment through a competitor in a particular geographic area for a certain amount of time, or both. While the intent is to protect a company’s trade secrets or ensure that an employer does not try to “poach” their clientele when they leave a position, the terms can be somewhat limiting in finding another job. For this reason, it is important to understand the terms of a non-compete before signing one.
What Are Considered Reasonable Terms for a Non-Compete Agreement?
Non-competes can be requested at the beginning of employment or as a term of severance. However, in the state of New Jersey, the terms must be reasonable so that they do not restrict the possibility of seeking new employment or starting one’s own business. In fact, there are three conditions that must be met to make a non-compete enforceable:
- First, it must protect the legitimate interests of the employer. This means that trade secrets that were shared with an employee during employment must be protected and maintained. It also means that a former employee is prohibited from attempting to coerce clients to follow them to their new position and cannot share information about software or other inside information that gives a company a competitive advantage.
- However, the second caveat is that the non-compete does not impose an undue hardship on the employee. This means that the terms cannot be so broad that they hinder an individual from being able to secure a job in the same industry in which they are accustomed to. Additionally, the timeframe in which they are required to refrain from pursuing employment from a competitor must be limited in scope.
For example, New Jersey typically deems a timeframe of two years as being a reasonable cutoff. A radius of 50 miles is considered sufficient by courts to protect a company’s interests, but this standard may vary depending on the company’s reach. For instance, an employer that only does business in one city cannot stipulate that a former employee is not permitted to seek employment anywhere in the state.
- And finally, the terms of a non-compete must not be injurious to the public and cannot prohibit the delivery of goods or services to an area. This means that a doctor, nurse, or other service provider cannot be prohibited from delivering essential services, as this can be viewed as causing harm to the public.
How Enforceable Are Non-Compete Agreements?
In short, the terms of the agreement will dictate its enforceability. If they are so broad that they hamper one’s ability to find a job, they may be deemed too restrictive. Additionally, as of September 2024, the FTC issued a final rule that aims to ban non-competes and encourages individuals to pursue employment as well as entrepreneurial opportunities that encourage innovation.
Under the rule, non-competes will be unenforceable except for those who are considered senior executives, who are defined as earning more than $151,164, which the FTC estimates affects less than 0.75% of workers. The FTC determined that non-competes are an unfair method of competition and tend to negatively affect employees. Instead, they advocate non-disclosure agreements and upholding trade-secret laws. Although the rule is currently being challenged, the implications for change should be taken into account for future non-compete agreements.
Let a South Jersey Employment Lawyer at The Law Offices of Leo B. Dubler, III, LLC Help You Sort Out Your Non-Compete Agreement
If you are confused about verbiage in your non-compete agreement or if you are wondering if it is enforceable, talk to a South Jersey employment lawyer at The Law Offices of Leo B. Dubler, III, LLC. Call today at 856-235-7075 or submit our online contact form for a free consultation. With office locations in Mount Laurel and Atlantic City, New Jersey, we proudly serve clients in Cherry Hill, Burlington County, Camden County, and South Jersey.