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Employers Beware: Don’t Require Your Employees To Sign A Noncompete Agreement That Does Not Protect A Legitimate Interest

In a recent New Jersey Appellate Division decision, Maw v. Advanced Clinical Communications, Inc., the court held that a former employee may have a whistleblower cause of action when her employer fired her based upon her refusal to sign a noncompete agreement that did not protect any legitimate interest of her employer. The plaintiff, Maw, was employed as graphic designer for approximately 3½ years when Advanced Clinical Communications (ACCI) presented her with an employment agreement that contained a covenant not to compete. The agreement would have precluded her from working for any competitor or a customer of her employer for a period of two years following her termination of employment.

As a graphic designer, Maw prepared written materials for ACCI for use in its marketing and educational programs for the pharmaceutical and healthcare industries. She had no training or education in any medical or pharmaceutical science and, thus, did not understand much of the content of the materials she designed. She was a low level employee that had no contact with ACCI’s clients or customers.

In January 2001, ACCI decided to have all of its employees at a certain level or above sign an employment agreement with a noncompete. When Maw refused to sign the agreement, she was fired.

Thereafter, she sued, alleging a violation of the Conscientious Employee Protection Act (CEPA) and a common law claim for wrongful discharge in violation of public policy. She claimed that the noncompete clause violated public policy because it did not protect any of ACCI’s legitimate business interests. Rather, its purpose was solely to stifle competition. Further, she had no access to any more confidential material than the clerical staff that was not asked to sign the agreement.

The court analyzed the agreement in the context of her position with ACCI. To subject an employee to a noncompete agreement, the court stated that the employer must first show that it has legitimate interest to protect. One must look at the employee’s job and “determine whether the employee has access to information worthy of protection through a noncompetition agreement, such as highly confidential or proprietary business information, trade secrets, or customer relations information.” If the employee does not have access to such types of information, then a noncompete cannot be enforced against the employee, regardless of its terms.

In this case, the court found that Maw was not privy to any trade secret or confidential information, had little interaction with customers, and had little substantive understanding of the documents she created. Based upon these circumstances, the court held that ACCI did not have a legitimate interest worthy of protection through a noncompete. Thus, the noncompete’s effect would be principally aimed at lessening competition, which the New Jersey courts have already found to be injurious to the public. Hence, the court found that by firing Maw for her refusal to sign the agreement, that act may violate public policy and support either a CEPA or common law whistleblower cause of action against ACCI.

This case is a significant development in noncompete law since it recognizes for the first time that there could be an adverse consequence for an employer who requires an employee to sign a noncompete agreement that does not protect its legitimate interests. Thus, employers should avoid overreaching when having its employees sign noncompete agreements. Employers must first determine whether the use of a noncompete agreement for a particular employee, based upon that employee’s job, would protect its legitimate interests. Only those employees who have access to confidential, proprietary, trade secret information, or deal with customers would fall into that category.

Employers should not require employees who do not fall into that category to sign noncompete agreements. Otherwise, if the employee refuses and is terminated or has any adverse action taken against such employee, such action may provide that employee a basis to sue for a whistleblower action. Further, based upon the Maw case, if the employee does sign the agreement and later leaves his or her employment, it is likely that such noncompete agreement will be deemed unenforceable.

There was a dissenting opinion in the Maw case which gives the employer an automatic right to appeal to the New Jersey Supreme Court. This appellate decision, if appealed, could be modified by the Court. If this proves to be the case, we will send out a follow-up Legal Alert.

This Alert was authored by Betsy G. Ramos, Esq., a member of Capehart Scatchard’s Litigation Department. Should you have any questions or like more information, please contact Mrs. Ramos at 856.914.2052, by fax 856.235.2786, or by email at bramos@capehart.com.

© 2003 Capehart & Scatchard, PA

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