Is Continuing Employment Sufficient Consideration To Make A Covenant Not To Compete Enforceable in NJ?

By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Covenant Not to Compete Attorney

The short answer is “Yes”. In a recently reported Appellate Division decision Hogan v. Bergen Brunswig Corp., 153 N.J. Super. 37,43 (App. Div. 1977) the court ruled that “the existence of sufficient consideration to support a post-employment restraint can be found in either the (1) original contract of employment or (2) in a post-employment contract, where the supporting consideration is the continuation of employment.” It further held that the continuation of employment after the plaintiff signed the letter with the covenant not to compete provides legally sufficient consideration for the covenant.

In this case a former employee brought legal action against his former employer, seeking declaratory and injunctive relief against enforcement of a post-employment restrictive covenant against the solicitation of customers. The Court, granted summary judgement permanently enjoining the enforcement of the covenant, and the employer appealed. The Appellate Division, held that the continuation of the former employee’s employment for approximately three years after he signed a letter acknowledging the restrictive covenant provided consideration sufficient to support the covenant.

The Court vacated the injunction and remanded the case back to the trial court.

In this case the defendant circulated to all of its employees a policy statement covering “the subject of conflicts of interest, gifts, gratuities, confidential information, trade secrets and inventions.” Employees were requested to sign and return a letter of acknowledgement. Included in the policy statement was the following:

“The Company has developed and continues to develop and use commercially valuable proprietary technical and nontechnical information which is vital to the success of the Company’s business. Employees are employed by the Company in a capacity in which they may become acquainted with such information and may in fact contribute thereto either by inventions, discoveries, designs, improvements or otherwise. In order to guard the legitimate interest of the Company, it is necessary for the Company to protect certain of the information either by patents or by holding such information secret or confidential.”

The statement then went on to address the following:

“For a period of twelve months following the termination of an Employee’s employment with the Company, he shall not directly or indirectly solicit any customer of the Company for whom he performed services while employed by the Company or which he solicited on behalf of the Company.”

A letter acknowledging receipt of the statement and the understanding “that the obligations which arise thereunder shall continue after the expiration of (his) employment with the Company” was signed by the plaintiff.

The plaintiff was later discharged and in response he filed a verified complaint in which he sought among other things:

  • A judgement declaring the policy statement void and unenforceable;
  • An injunction against any further action by defendant predicated upon the policy statement, and
  • A restraint against defendant’s interference with plaintiff’s business relationship.

Finding for the employer the court found an employee’s restrictive covenant against post-employment competition ancillary to a contract of employment will be given effect if the covenant “is reasonable under all circumstances of the particular case” and it will generally be found to be reasonable if it “simply protects the legitimate interest of the employer, imposes no undue hardship on the employee and is not injurious to the public.”

The enforcement of such restrictive covenants does not depend upon the existence of a written contract of employment, for such contracts need not be in writing but may be evidenced by conduct rather than words.

The existence of sufficient consideration to support a post-employment restraint may be found in either the original contract of employment or a post-employment contract, where the supporting consideration is at least, in part, the continuation of employment.

To discuss your NJ Covenant Not to Compete matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.

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