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By: Kun Zhao, Esq.
Where an employer’s most valuable assets are trade secrets, such as sensitive technical and commercial information that are not generally known to the public, the employer will often require its employees execute two types of agreements to protect its trade secrets and maintain its competitive edge in the marketplace: (1) a confidentiality/non-disclosure agreement and (2) a non-competition agreement.
The purpose of a confidentiality agreement is to require an employee who receives confidential information not to disclose such information to any other person and to keep it a secret. On the other hand, the purpose of a non-competition agreement is to limit the employee’s actions following termination and to prevent the employee from using resources, knowledge, sensitive trade secrets, and/or leads gained during the employment to directly or indirectly compete with the employer.
While confidentiality agreements are generally enforceable in New Jersey and New York, restrictive covenants on competition, such as a non-competition agreement, are not favored in the law. Under the New Jersey and New York law, only a reasonable non-competition agreement is enforceable by the court.
The reasonableness of a non-competition agreement is to be determined on a case by case basis. In drafting a non-competition agreement to protect its business interests, an employer needs to determine whether (1) the restrictive covenant is necessary to protect its legitimate interests, (2) whether it would cause undue hardship to the employee, and (3) whether it would be injurious to the public.
To be reasonable, employers need to show that they have a legitimate interest in restricting competition, such as protecting confidential business information, protecting its investment in the training of its employee, or protecting its client bases. Beyond that, three additional factors should be considered in determining whether the restrictive covenant is not overbroad: (1) its duration, (2) the geographic limits, and (3) the scope of activities prohibited. Each of these factors must be narrowly tailored to ensure the covenant is no broader than necessary to protect the employer’s interests.
We at Hill Wallack LLP stand ready to assist with any questions and assistance needed in drafting and preparing confidentiality agreements and non-competition agreements to protect your business interests.