By Steven L. Fox

In 2024, the Federal Trade Commission (FTC) passed a sweeping ban on non-compete agreements. This potentially altered and invalidated many employment contracts nationwide.
This final ruling by the FTC was quickly challenged. In Ryan, LLC v. FTC, the United States District Court for the Northern District of Texas, Dallas Division, struck down the FTC’s final ruling attempting to prohibit the enforceability of non-compete agreements finding, among other reasons, that the FTC had exceeded its authority to enact such a broad directive.
In New Jersey, many employers have access to restrictive covenants that, when properly drafted and executed, are enforceable. These include non-disclosure agreements (NDAs), non-solicitation agreements pertaining to clients/customers, and non-poaching agreements prohibiting the solicitation of co-employees to leave their current employment.
 
Generally, to be enforceable the above agreements must satisfy all three criteria:
  1. Legitimate Business Interest: Businesses, organizations, and other employers can only use restrictive covenants that protect a legitimate interest such as confidential information and trade secrets. A restrictive covenant that goes beyond protecting a legitimate business interest will be deemed too broad.
  2. No Undue Hardship: Restrictive covenants must not put an undue burden on an employee, independent contractor, or other entity. As an example, a noncompete that is permanent will likely be too broad to enforce on the grounds that it imposes an undue hardship.
  3. Consistent With Publie Policy: Finally, restrictive covenants must be consistent with New Jersey public policy to be enforceable. For example, a nondisclosure agreement that bars someone from reporting a crime is against public policy in New Jersey, and can be thrown out.
In considering the three criteria above, Courts will consider the length of time the restrictions are in place (generally two years maximum but the Court will consider the industry to which the restriction is being applied), the scope of the restrictions and the geographical area the restrictions apply. All three must be reasonable and serve a legitimate business interest of the party seeking to enforce the restrictions.
Additionally, New Jersey is known as a “blue pencil state” regarding restrictive covenants, meaning that Courts can modity the terms of a restrictive covenant to make the terms reasonable and enforceable instead of invalidating them altogether.
The enforceability of a restrictive covenant in New Jersey is quite often determined on a case-by-case basis and is factually sensitive. The balance of protecting an employer’s legitimate business interest versus an employee’s interest in gainful employment in a familiar industry is delicate and one which Courts review in great detail.
If you have any questions about restrictive covenants, please feel free to contact Steven L. Fox in our Litigation practice.