New Jersey Employment Lawyer Blog

Articles Posted in Non-Compete Agreements

Published on:

The New Jersey Employment Agencies Act requires employment agencies doing business in New Jersey to register and obtain licenses from the New Jersey Division of Consumer Affairs. Agencies that fail to do so cannot file lawsuits seeking to collect fees or commissions that are owed to them, or to enforce employment agreements with the individuals who work for them. For instance, an unlicensed employment agency cannot sue to enforce a non-compete agreement.

Businesspeople Standing Outside Employment AgencyHowever, a recent case makes it clear that although both employment agencies and temporary help service firms must register with the state, only employment agencies have to obtain licenses.

The case involves Varuna Jothi Uppala, an Information Technology worker who was employed by Logic Planet. Logic Planet agreed to train Ms. Uppala and assign her to work for its clients on temporary assignments. Ms. Uppala was an employee of Logic Planet, which agreed to pay her a salary of $60,000 per year and to provide her health insurance and other benefits.

When Logic Planet hired Ms. Uppala, she signed an employment contract with it. That agreement includes a non-compete clause that prohibits Ms. Uppala from working directly for Logic Planet’s clients for a specified period. It also includes a liquidated damages provisions that requires Ms. Uppala to pay back $15,000 if she terminates her employment before her contract expires.

Despite this agreement, Ms. Uppala quit her job with Logic Planet and began to work directly for one of the company’s clients. She claimed she did so because Logic Planet failed to provide her any significant training, did not place her on projects as it had promised, and did not pay her agreed-upon salary.

Logic Planet sued Ms. Uppala, alleging among other claims that she (1) breached her employment contract, (2) interfered with Logic Planet’s contractual relationship with its end-client, and (3) breached her duty of loyalty to it. In response, Ms. Uppala asked the trial court to dismiss the claims against her based on the New Jersey Employment Agencies Act.

The trial judge explained that the New Jersey Employment Agencies Act requires employment agencies to obtain a license from the Division of Consumer Affairs. However, it ruled that “temporary help service firms” only need to register with the state, but do not need to obtain licenses.

Under the statute, an “employment agency” is an individual or business that attempts to find jobs for individuals who are seeking work. In contrast, a “temporary help service firm” hires individuals who it then assigns to work for its clients. The key difference is whether the individual is employed directly by the end-client, as with an employment agency, or is employed by the agency but performs work for the client, as with a temporary help service firm.

In Logic Planet Inc. v. Uppala, a published trial court opinion, the judge ruled that Logic Planet is a temporary help service firm since Mr. Uppala was its employee and received her compensation and benefits directly from it. Accordingly, it concluded that Logic Planet is not an employment agency, and although it is required to register with the state, it is not required to obtain a license. It further recognized that Logic Planet is registered with the Department of Consumer Affairs as a temporary help service. Accordingly, it denied Ms. Uppala’s motion to dismiss.

The takeaway from this case for employees is that if you worked for an employment agency or a temporary agency, your former employer may not be able to enforce your non-compete agreement or other employment contract if it was not properly registered or licensed with the state.


Published on:

A recent decision from the District of New Jersey recognizes that employers are not entitled to compensatory damages from employee who breach their non-competition agreements unless the employer can prove it would have received the income but-for the violation.

The case involved Jose Munoz and Roberto Abreu, two former employees of Job Connection Services, Inc. (“JCS”). JSC provides employers with job placement and human resources support.

Mr. Munoz and Mr. Abreu each signed one year non-compete agreements with JSC when it hired them. Those agreements prohibited them from owning, operating, or joining a business that directly or indirectly competes with JSC within sixty mile of any JCS office.

After they stopped working for JCS, Mr. Munoz and Mr. Abreu formed a business, Right Hand Staffing Solutions, LLC. In June 2013, JCS sued Right Hand, Mr. Munoz and Mr. Abreu, claiming they violated their restrictive covenants. For example, JCS claimed Right Hand used its confidential customer lists to obtain business with one of its former customers, APC Postal Logistics.

Three months later, after a settlement conference, the parties entered into a consent order. Under the order, Mr. Munoz, Mr. Abreu and Right Hand agreed not to do business with a list of customers until after August 31, 2014. In exchange, JCS dismissed its lawsuit. Although the consent order had exceptions for some customers, including some employees who Right Hand had already placed at jobs, there were no such exceptions for APC.

In January 2015, JCS filed a motion alleging Mr. Munoz and Right Hand had solicited business from APC in violation of the consent order. In fact, Right Hand had billed APC for more than 28,000 hours of employee time between September 2013 and August 2014.

In response, Mr. Munoz and Right Hand claimed they were permitted to continue to do business with employees who they had placed at APC before the agreed to the consent order. In JobConnection Services, Inc., v. Munoz, the Court rejected this argument, concluding this purported exception “flies in the face of the plain terms of the agreement,” especially since there were similar exceptions for other companies but none for APC. Accordingly, it ruled that Mr. Munoz and Right Hand had violated the non-compete provision in the consent order.

Judge with gavel non-compete agreementHowever, the Court rejected JCS’s request for damages based on the net profits Right Hand received from APC. It explained that compensatory damages are intended “to put the injured party in as good a position as . . . if performance had been rendered.” But JCS did not prove it would have received this income if Right Hand had not violated the consent order. To the contrary, by the time the parties entered into the consent order APC already had stopped using JCS as a result of its “unsatisfactory experience with JCS.” Thus, JCS did not prove it lost any money as a result of the violation of the consent order.

The Court also ruled that JCS could not seek damages based on the original non-compete agreement Mr. Munoz signed with JCS since the company gave up its right to enforce that contract when it entered into the consent order. Accordingly, it did not award any compensatory damages to JCS.

Nonetheless, the court entered an injunction prohibiting Mr. Munoz or Right Hand from doing business with APC until after August 31, 2014. It explained that JCS bargained “for a chance at regaining APC as a customer without any interference from Defendants.” Accordingly, an injunction would protect JCS’s right to attempt to win back its business with APC without any competition from JCS.

Finally, the court awarded JCS attorneys’ fees and costs in an amount to be determined. It did so pursuant to a provision in the consent order which entitles the prevailing party to recover its reasonable attorneys’ fees and legal costs from the other party.

Published on:

bigstock-Man-filling-out-an-employment--16555166.jpgLast week, the United States Supreme Court overturned a state court’s ruling that a non-compete agreement is invalid because it violates state law. The Supreme Court ruled that since the non-competition agreement included a valid arbitration clause, an arbitrator has to decide whether the non-compete agreement is legally enforceable.

The case originated in Oklahoma, a state which has a statute that limits when non-competition agreements are enforceable. Eddie Lee Howard and Shane D. Schneider filed a lawsuit against their former employer, Nitro-Lift Technologies, in which they sought a ruling that the confidentiality and non-compete agreements they entered into with Nitro-Lift were unenforceable because they violated Oklahoma law. The case went up to the Oklahoma Supreme Court, which ruled that the non-compete agreements were null and void under Oklahoma law. However, Nitro-Lift argued that the state Supreme Court should not have decided whether the non-compete agreement was enforceable since there were provisions in the non-compete agreements which required all disputes to be decided through private arbitration.

The United States Supreme Court agreed with Nitro-Lift. In Nitro-Lift Technologies, LLC v. Howard, it ruled that once a court determines there is a valid and enforceable arbitration agreement, decisions about the enforceability of anything else in the contract must be decided by an arbitrator. As a result, the Oklahoma Supreme Court should not have decided whether the non-compete agreement itself is enforceable.

Nitro-Lift is part of a series of cases in which the United States Supreme Court has recognized how difficult it is to get around arbitration agreements. This is extremely important, since when you sign an arbitration agreement you are giving up your right to a jury trial, and arbitration is typically considered much more favorable to employers than employees.

Continue reading

Published on:

In a sluggish economy employers tend to use non-compete agreements more frequently to protect their interests. At the same time employees struggling to find a job in difficult job market are more likely to question and challenge the limitations set by their non-compete agreements. As a result, we frequently receive inquiries from employees about whether their non-compete agreements are enforceable under New Jersey law. For example, an employee recently asked if her employer could sue her for violating a non-compete agreement even though the employer fired her only a few weeks after she started the job.

bigstock-Businesswoman-Signing-Paper-8001846.jpgTechnically, an employer is not required to give an employee anything more than his or her job, even for a short time, in exchange for signing a non-compete agreement. However, non-compete agreements are disfavored by New Jersey courts and have to meet a few different requirements to be enforceable. Thus, it is impossible to give a short or definitive answer to this client, especially without carefully reviewing her agreement. I can explain, however, the factors New Jersey courts consider when deciding whether to uphold a non-compete clause in an employment agreement.

A non-compete agreement will be enforced in New Jersey only if it protects the legitimate interests of the employer, does not impose an undue hardship on the employee, and is not unduly harmful to the general public.

Legitimate interests of the employer can include protecting trade secrets, proprietary or confidential information, and customer relations. Courts generally will not uphold a non-compete agreement or another form of restrictive covenant if the employer is merely trying to prevent fair competition.

In determining if a non-compete agreement places an “undue burden” on the employee, courts analyze whether the employee is likely to get reemployed in his field somewhere else despite the restrictions of the agreement. The reason why the employee was separated from the job can also be an important factor. For example, courts are much more likely to find an undue hardship on the employee if the employee was laid off or fired without cause, like the client I mentioned above. However, unlike how New York treats non-compete agreements, New Jersey does not have a rule that they are automatically invalid if an employee lost his job involuntarily.

New Jersey courts also have struck down non-compete agreements that limit the public’s right to have access to receive professional advice and services. For example, New Jersey does not permit non-compete agreements to be enforced against attorneys. Although there is no similar prohibition for physicians, accountants, or other licensed professionals, courts will consider whether a non-compete agreement harms the public by restricting its access to professionals in a particular geographic area.

A non-compete agreement only is enforceable if it is reasonable in terms of its duration and geographic scope. What is reasonable depends on all facts in the case, and there are hardly any bright line rules. Non-compete restrictions lasting up to two year are typically enforceable, but longer restrictions can be enforceable depending on the circumstances. The geographic scope can legitimately be limited to any area where the company actually does business, or is seeking or planning to do business. If a court finds the restrictions are overly board, it can rewrite the agreement to make the restrictions reasonable. However, if a court finds the company intentionally made the restrictions unreasonably broad, it can throw out the entire agreement.

Continue reading

Published on:

Under New York law, non-compete agreements and other restrictive covenants in employment contracts are disfavored, and are enforceable only in limited circumstances. New York courts enforce non-competes only if all three of the following conditions are met:

1. The non-compete is reasonably limited in scope and duration;

2. The restrictions are no greater than necessary to protect the employer’s legitimate interests;

3. The non-compete is not harmful to the general public;

4. The non-compete is not unreasonably burdensome to the employee.

Even when those four requirements are met, an employer seeking to enforce a non-compete agreement has to prove it is not merely seeking to use the non-compete agreement to prevent competition. Instead, it has to show the non-compete is necessary to protect its legitimate interests, such as to prevent the employee from using or disclosing its trade secrets or confidential information, to protect the company’s goodwill, or to prevent special harm due to the unique nature of the employee’s job.

Thumbnail image for Employment Agreement Non-Compete Provision.jpgThere are few bright line rules regarding when a non-compete agreement is reasonable. In deciding whether a restrictive covenant is reasonable, courts consider a number of factors and balance the right of the employee to work and earn a living against the importance of the restrictions to protect the employer’s business. In terms of duration, covenants not to compete for 6 months or less are generally reasonable. New York courts have approved non-competes lasting up to two years when the restrictions are otherwise reasonable and not too burdensome for the employee.

If an employee is receiving compensation from her former employer during the period when she is supposed to refrain from competition, such as severance pay or garden leave pay, the non-compete is more likely to be upheld.

Even when a non-compete agreement is reasonable, it is still unenforceable if the employer fired the employee without good cause. Likewise, a reasonable covenant not to compete is unenforceable if the employer breached the employee’s employment contract.

Attorneys, as well as stock brokers and other registered representatives under Financial Industry Regulatory Authority (FINRA), should be aware that special rules apply to their non-compete agreements in New York. For example, agreements that restrict attorneys from practicing law are unenforceable, except as a condition for receiving retirement benefits. Likewise, contracts that prohibit customers from continuing to use the services of their registered representative are not enforceable.

Continue reading

Contact Information