Low-Level Employee Not Required to Sign Non-Compete

An employer may not be able to fire a “low-level” employee who refuses to sign a non-compete agreement under a ruling by a New Jersey state appellate court.

In order to be enforceable, covenants not to compete must protect the legitimate business interests of the employer. So if an employee does not have access to trade secret or confidential information of the employer, there is no legitimate business interest to protect and a covenant not to compete would violate public policy, the court found.

The issue arose when Advanced Clinical Communications, Inc. (ACCI) decided in 2001 to require all of its employees at the level of “coordinator” and above to sign an employee agreement. Contained in the agreement was a covenant not to compete for two years after leaving the company. An employee, Karol Maw, had been employed by ACCI since 1997 as a graphic designer. When she was presented with the employee agreement, she attempted to negotiate with ACCI on the length and scope of the non-compete agreement. ACCI refused to negotiate. She did not sign the agreement and she was fired as a result.

Maw sued ACCI under the New Jersey Conscientious Employee Protection Act (CEPA) and common law for wrongful discharge in violation of public policy. The case was dismissed upon ACCI’s motion to dismiss. Maw appealed. Under CEPA, an employer is prohibited from taking any retaliatory action against an employee because the employee “objects to, or refuses to participate in any activity, policy or practice which the employee reasonably believes: . . .is incompatible with a clear mandate of public policy concerning the public health, safety or welfare. . .”

In order to find that the employer violated CEPA, “it is sufficient that the court be able to identify ‘the law or public policy that might have been violated by the challenged conduct.'” The appellate court noted that non-competition agreements are looked upon unfavorably by the courts as potential restraints on trade. In order to be enforceable, a restrictive covenant must be reasonable under the circumstances. Reasonableness is found if the covenant protects the legitimate interests of the employer, imposes no undue hardship on the employee and is not injurious to the public.

ACCI provides marketing and educational services to the pharmaceutical and healthcare industries, employing medical educators and clinical researches to conduct educational programs. Maw was employed to design written materials used by ACCI. Her job skills were in graphic design and she had no medical or pharmaceutical training. She alleged that she was a “low level employee” and that “she had little understanding of the substantive content of the documents she was creating.” She denied working with any confidential information and said most of the information with which she was working was public and she had little or no interaction with ACCI’s customers. She said ACCI did not distinguish between employees who were required to sign the employee agreement based upon their job duties and that her access to materials “was no different from ACCI’s administrative and clerical staff, who were not asked to sign the Agreement.”

In order for her to succeed on her CEPA claim, Maw was required to articulate the existence of a clear mandate of public policy that ACCI violated. She said the restrictive covenant violates public policy because her employer had no legitimate business reason to require her to sign it. The appellate court said covenants not to compete must be carefully scrutinized to determine the interests asserted by the employer. The agreement may not be used merely to restrict competition nor to bind a particular employee to the employer. The employer must demonstrate that it has legitimate interests that require protection. “This requires an analysis of the employee’s job, to 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,” the court wrote.

In this case, Maw was not privy to any trade secrets, proprietary or otherwise confidential information and had little interaction with company customers. Moreover, she also alleged that the restrictive covenant may be unduly burdensome to her. The restriction was for two years after she left but ACCI “gives no explanation as to why such a lengthy period of time is necessary.” The clause also contained no geographic restriction. “Theoretically, this would prevent plaintiff from engaging in a similar type of employment anywhere in the world. Given these restrictions, the hardship on plaintiff may, on balance, outweigh the employer’s competing business interests.”

The court said New Jersey’s “strong prohibition against restraint of trade, and against unduly burdening employees by restricting their right to engage in their chosen field of employment, establishes the public policy necessary to support a CEPA and . . .common law cause of action.” While covenants not to compete usually are litigated after the employee leaves the previous employer and goes to work for a competitor, the court said there was no requirement to make an employee “”with a reasonable belief that the noncompete clause violates public policy to have to wait until she leave her employment to have her rights adjudicated.”” Otherwise, the agreement would limit her job search, or if she took a job in violation of the covenant, she would face the prospect of being sued by her former employer. “We see no purpose to require an employee to sign what may be a legally unenforceable noncompete clause, under the threat of discharge, and then wait to litigate the agreement should the employer seek to enforce it at a later date,” the court said. This case underscores the necessity of carefully crafting non-competition clauses in employee agreements so that they protect the legitimate business interests of the employer and are not overly broad.