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Restrictive Covenants

Non-compete Covenants in employee agreements - Dont Let Your Employees steal your Clients

By Kenneth Vercammen, Esq. Most businesses spend thousands of dollars developing client lists, training staff and promoting and advertising their businesses. After investing substantial time and money in good will, an owner needs to protect the business from employees attempting to leave and take away accounts. Without a non-compete clause and a restrictive covenant, an employee can open up a competing business on the same street! An employer does not want to pay an employee to build relationships and develop a business, only for that employee to leave, take the fruits of the employers investment, and compete directly against the employer. The NJ Supreme Court granted greater protection to employers and businesses in Lamorte Burns & Co., Inc. v. Walters 167 N.J. 285 (2001)

The Court in Lamorte held: By secretly collecting confidential and proprietary client information while employed by Lamorte Burns & Co., Inc. and using the data to solicit and take away Lamortes clients immediately after resigning, Michael Walters and Nancy Nixon breached their duty of loyalty, tortiously interfered with Lamortes economic advantage, misappropriated confidential and proprietary information, and competed unfairly.

The Court in Lamorte determined that: The client information gathered from Lamortes files by Walters and Nixon was not generally available to the public, would not have been known to defendants but for their employment by Lamorte, went beyond mere client names, and gave defendants an advantage in soliciting clients after they resigned. Walters and Nixon knew Lamorte had an interest in protecting the information. The client information was confidential and proprietary.

The Supreme Court in Lamorte also determined that: An employee may prepare to start a competing business while employed by the entity he will compete with, but may not breach the undivided duty of loyalty owed the employer while still employed by soliciting the employers customers or engaging in other acts of secret competition. Walters and Nixon breached the duty of loyalty by collecting protected information while employed by Lamorte for the sole purpose of gaining an advantage over Lamorte as soon as they resigned.

The Supreme Court in Lamorte held that: Walters and Nixon acted with malice and in a manner contrary to the notion of free and fair competition by using the secretly gathered confidential client data to effect a weekend coup, knowing that the delay in Lamortes discovery of their resignation and solicitation would work to their economic advantage Restrictive covenants are very useful for businesses to prevent an employee from taking your clients and your business.

Recently, the NJ Supreme Court ruled an non-compete covenant as enforceable and not against public policy. In Maw v. Advanced Clinical Communications, Inc (ACCI) 179 N.J. 439, 846 A.2d 1222. (2004). In this case, Karol Maw began working for Advanced Clinical Communications, Inc. (ACCI) as a graphic designer on November 1, 1997. ACCI provides marketing and educational services for the pharmaceutical and healthcare industries. Maw had been hired to design written materials used by ACCI in its marketing and educational programs. Maw was promoted to Senior Graphic Designer in January 2001. Thereafter, pursuant to a new company policy, ACCI required all of its employees at or above the level of ³coordinator² to sign a non-compete agreement as a condition of continuing employment. The agreement precluded, among other things, Maw from becoming employed by any competitor or customer of ACCI for a period of two years following the termination of her employment. Maw was informed that she could seek legal advice concerning the employment agreement. Maw consulted her father, an attorney, who suggested changes. Maw presented those revisions to ACCI¹s Human Resource Department but was told that no changes could be made. Maw did not sign the non-compete agreement, prompting her termination by ACCI in March 2001 for failing to comply with company policy. The court in Maw held her conscientious employee CEPA claim must fail because our State¹s public policy respecting noncompete agreements is not set forth in a ³clear mandate,² and does not ³concern[] the public health, safety or welfare or protection of the environment.² N.J.S.A. 34:19-3c(3). Over a generation ago, our Court sketched the broad parameters for determining whether a noncompete agreement was unenforceable. Whitmyer Bros., Inc. v. Doyle, 58 N.J. 25 (1971); Solari Indus. Inc. v. Malady, 55 N.J. 571 (1970). In Solari, the Supreme Court canvassed, the historical treatment of noncompete agreements, and acknowledged the previously held negative view of such agreements. 55 N.J. at 575-84. The Court cited academic writings on the topic that elaborated in greater detail on the relation of such agreements to Anglo-American commercial practices. See, e.g., Solari, supra, 55 N.J. at 574-77 (citing Harlan M. Blake, Employee Agreements Not to Compete, 73 Harv. L. Rev. 625 (1960)). The court in Maw further held: But Solari was a turning point, for the Court held then ³that the time is well due for the abandonment of New Jersey¹s void per se rule in favor of the rule which permits the total or partial enforcement of noncompetitive agreements to the extent reasonable under the circumstances.² 55 N.J. at 585. In Whitmyer, supra, The Court expanded on Solari, establishing what is now known as the Solari/Whitmyer test for determining whether a noncompete agreement is unreasonable and therefore unenforceable. Under the Solari/Whitmyer test, a noncompete agreement is enforceable ³if it Osimply protects the legitimate interests of the employer, imposes no undue hardship on the employee and is not injurious to the public.¹² Ingersoll-Rand Co. v. Ciavatta, 110 N.J. 609, 628 (1988) (quoting Whitmyer, supra, 58 N.J. at 32-33). The first two prongs of the test require a balancing of the employer¹s interests in protecting proprietary and confidential information and the asserted hardship on the employee. Ingersoll-Rand, supra, 110 N.J. at 634-35. The third requires the reviewing court to analyze the public¹s broad concern in fostering competition, creativity, and ingenuity. Id. at 639. Solari/Whitmyer has now become an accepted part of the common law, not only in New Jersey but also in other jurisdictions around the country. Id. at 630-34. The court in Maw further held: Although our dissenting colleagues may contend that do-not-compete provisions are, or should be, per se illegal, in point of fact, they are not illegal per se. It is not accurate to describe our current caselaw, which allows enforcement of reasonable non-compete agreements, as a ³clear mandate² that disfavors such agreements. The Solari/Whitmyer test is a multi-part, fact-intensive inquiry. Not only must multiple interests of differing parties and entities be identified, but also, those interests must be gauged for reasonableness and legitimacy. The application of that test here, and as a general matter, simply does not evoke the type of a ³clear mandate of public policy² that was contemplated by N.J.S.A. 34:19-3c(3). The court in Maw further held: The Court are informed by the amici that non-compete agreements are a common part of commercial employment. The Court do not accept as a premise that employers, in large numbers, are engaging in a practice that is ³indisputably dangerous to the public health, safety or welfare.² Dzwonar, supra, 177 N.J. at 464. It is more appropriate to characterize the business community as having adapted to the Solari/Whitmyer approach that recognizes that noncompete agreements can serve a useful purpose so long as the agreement is not unreasonable. The court in Maw concluded that plaintiff¹s private dispute over the terms of the do-not-compete provision in her employment agreement does not implicate violation of a clear mandate of public policy as contemplated by Section 3c(3) of CEPA. As previously noted, plaintiff did have options available to her. If she could not negotiate terms that were to her liking, she was free to dispute the reasonableness of those terms if and when her employer attempted to enforce the agreement. The burden then would be on the employer to hire counsel and initiate enforcement litigation, Solari, supra, 55 N.J. at 574, and nothing would preclude an employee-defendant in such an action from asserting any and all affirmative defenses and counterclaims. Ingersoll- Rand, supra, 110 N.J. at 621-22

HIRE the Law Office of Kenneth Vercammen & Associates to prepare Restrictive Covenants to deter employees from taking your business. Call 732-572-0500 to schedule a confidential consultation.

Kenneth Vercammen was the Middlesex County Bar Municipal Court Attorney of the Year
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Kenneth Vercammen is the Managing Attorney at Kenneth Vercammen & Associates in Edison, NJ. He is a New Jersey trial attorney has devoted a substantial portion of his professional time to the preparation and trial of litigated matters. He has appeared in Courts throughout New Jersey each week for litigation and contested Probate hearings.

Mr. Vercammen has published over 125 legal articles in national and New Jersey publications on elder law, probate and litigation topics. He is a highly regarded lecturer on litigation issues for the American Bar Association, NJ ICLE, New Jersey State Bar Association and Middlesex County Bar Association. His articles have been published in noted publications included New Jersey Law Journal, ABA Law Practice Management Magazine, and New Jersey Lawyer.

He is chair of the Elder Law Committee of the American Bar Association General Practice Division. He is also Editor of the ABA Estate Planning Probate Committee Newsletter and also the Criminal Law Committee newsletter. Mr. Vercammen is a recipient of the NJSBA- YLD Service to the Bar Award. And past Winner "General Practice Attorney of the Year" from the NJ State Bar Association. He is a 22 year active member of the American Bar Association. He is also a member of the ABA Real Property, Probate & Trust Section.

He established the NJlaws website which includes many articles on Elder Law. Mr. Vercammen received his B.S., cum laude, from the University of Scranton and his J.D. from Widener/Delaware Law School, where he was the Case Note Editor of the Delaware Law Forum, a member of the Law Review and the winner of the Delaware Trial Competition.


Edison Adult School -Wills, Elder Law & Probate- 2007, 2006, 2005, 2004, 2003, 2002 [inc Edison TV], 2001, 2000,1999,1998,1997
Nuts & Bolts of Elder Law - NJ Institute for Continuing Legal Education/ NJ State Bar ICLE/NJSBA 2008, 2007, 2006, 2005, 2004, 2003, 2002, 2000, 1999, 1996
Elder Law and Estate Planning- American Bar Association Miami 2007
Elder Law Practice, New Ethical Ideas to Improve Your Practice by Giving Clients What They Want and Need American Bar Association Hawaii 2006
South Plainfield Seniors- New Probate Law 2005, East Brunswick Seniors- New Probate Law 2005
Old Bridge AARP 2002; Guardian Angeles/ Edison 2002; St. Cecilia/ Woodbridge Seniors 2002;
East Brunswick/ Halls Corner 2002;
Linden AARP 2002
Woodbridge Adult School -Wills and Estate Administration -2001, 2000, 1999, 1998, 1997, 1996
Woodbridge Housing 2001; Metuchen Seniors & Metuchen TV 2001; Frigidare/ Local 401 Edison 2001; Chelsea/ East Brunswick 2001, Village Court/ Edison 2001; Old Bridge Rotary 2001; Sacred Heart/ South Amboy 2001; Livingston Manor/ New Brunswick 2001; Sunrise East Brunswick 2001; Strawberry Hill/ Woodbridge 2001;
Wills and Elder Law - Metuchen Adult School 1999,1997,1996,1995,1994,1993
Clara Barton Senior Citizens- Wills & Elder Law-Edison 2002, 1995
AARP Participating Attorney in Legal Plan for NJ AARP members 1999-2005

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