Court Prohibits Employer from Requiring Its Employee to Sign a Non-competition Agreement

Court Prohibits Employer from Requiring Its Employee to Sign a Non-competition Agreement

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On April 16, 2003, a New Jersey State Appeals Court prohibited an employer from requiring its employee to sign a non-competition agreement where the employee did not have access to trade secrets or other confidential or proprietary information and the employer identified no other business interest justifying a non-competition agreement. This groundbreaking decision may have a major impact on New Jersey employers and, if the court's reasoning is adopted, on employers across the country.

In the case, Maw v. Advanced Clinical Communications, Inc., the employer, Advanced Clinical , required all of its employees, except administrative and clerical workers, to sign non-competition agreements preventing them from working for a competitor or soliciting Advanced Clinical's employees or customers for a period of two (2) years following their separation from employment. When employee Karol Maw, a graphic designer for the company, refused to sign such an agreement, Advanced Clinical fired her. Maw sued Advanced Clinical for wrongful discharge in violation of public policy.

Maw argued that Advanced Clinical had no legitimate business reason for requiring her to sign the non-competition agreement, because she had no access to trade secrets or to confidential or proprietary information during her employment. As such, she argued that the non-competition agreement was unreasonable and violated public policy by stifling competition and binding her to employment with Advanced Clinical. Advanced Clinical argued that Ms. Maw, as an at-will employee, had no right to dictate the terms and conditions of her employment, and that the reasonableness of a non-competition agreement can only be determined after the employee has signed such an agreement and attempted to work for a different employer. Rejecting the employer's argument, the court determined that it was wrongful to terminate an employee for refusing to sign an unenforceable non-competition agreement.

The court focused on Maw's lack of access to Advanced Clinical's sensitive information. Maw was employed as a low-level graphic designer whose job involved no greater access to Advanced Clinical's trade secrets, proprietary or confidential information than administrative or clerical employees who were not required to sign non-competition agreements. Much of the marketing and educational information Maw used was publicly available, and she understood little of the Company's information that she used in her work. Further, Maw had little interaction with Advanced Clinical's customers.

While the court noted that non-competition agreements are not per se unreasonable in New Jersey, non-competition agreements are disfavored as potential restraints on trade. Accordingly, the law requires an employer to demonstrate that it has legitimate interests that require protection in order to subject an employee to a non-competition agreement. "This requires," the court stated, "an analysis of the employee's job, to determine whether the employee has access to information worthy of protection through a noncompetition agreement, such as highly confidential or proprietary business information, trade secrets, or customer relations information."

Accordingly, "if the employee does not have access to trade secrets or other confidential or proprietary information, then a non-competition agreement may not be enforced against the employee, regardless of its terms." For this reason, the court announced for the first time that "New Jersey's strong prohibition against restraint of trade, and against unduly burdening employees by restricting their right to engage in their chosen field of employment, establishes the public policy necessary to support a [wrongful termination] cause of action." Interestingly, in reaching this conclusion, the Maw court relied on a California law, which forbids employers from requiring their employees to sign unenforceable non-competition agreements.

For a discussion of a recent California case that made it more difficult for employers to protect their valuable proprietary information from disclosure by departing employees, see our April 7, 2003 Internet Alert.The Maw decision opens the door to potential employer liability based on their insistence that employees sign non-competition agreements, even if the validity of the agreement is unclear. In light of this development, employers should exercise caution when seeking non-competition agreements. Alternatively, employees may use confidentiality agreements to protect against disclosure of sensitive information.

Louis Sapirman
[email protected]

Greg Reiser
[email protected]