In today's job market, companies need every advantage they can get when it comes to hiring and retention of workers. Requiring new hires to sign restrictive covenants like noncompete agreements could be off-putting to some of the best talent in a limited pool.
Yet companies have every right to protect their investment in talent and intellectual property, and noncompete agreements are a standard part of that process. What's the best way to balance protecting the company's interest with attracting new employees with valuable experience?
First, it's important to understand that overly-broad or unduly restrictive noncompetes may not be enforceable at all. In New Jersey, noncompete clauses and agreements must generally:
- Protect only the legitimate interests of the employer, such as confidential information, trade secrets and customer relationships, as opposed to preventing competition.
- Impose no undue hardship on the employee, meaning it is reasonable in subject matter, duration and geographic reach.
- Not be injurious to the public, such as by restricting competition or the availability of goods and services.
Furthermore, the lower the employee's level of education and the less access an employee has to proprietary information, the less likely a noncompete would be enforced. Correspondingly, noncompetes are more likely to be enforced against high-level executives with generalized access to such information.
In other words, your use of a noncompete agreement should be selective and tailored to meet strategic goals.
Consider more limited noncompete agreements
In most circumstances, your noncompete agreement should be individualized to the level of employee. For ordinary workers, the agreement should be quite limited in describing which jobs would be considered a violation. This description should include work for direct competitors only in your immediate geographic area and for a limited time period.
A top executive could be restricted in a broader array of jobs, a greater geographic area and for a longer time. Your attorney can tell you what terms have been found acceptable in New Jersey.
Consider using confidentiality and nondisclosure agreements
If your main goal is protecting confidential information, consider using a confidentiality or nondisclosure agreement instead. These can protect trade secrets, intellectual property and proprietary information such as customer lists. Courts have been more apt to enforce these over a longer period of time.
A 2017 study found that approximately 1 in 5 American workers were subject to a current noncompete agreement, and nearly 40 percent had signed one during the course of their careers. Yet noncompete agreements often serve to send highly qualified employees out of the local economy or outside the fields where they could perform best. Make sure your agreements are tailored to protect your interests while being limited enough to be enforced in court.