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Two Recent Court Decisions Provide Employees Avenues to Challenge Non-Compete Agreements

Employees are often unable to defend themselves against employers attempting to restrain their post-employment business activities through non-compete agreements.  While employers can sometimes show they have a protectable interest in restraining a former employee’s post-employment business activities, it has become far too common that employers inappropriately use restrictive covenants against former employees who simply cannot afford to defend themselves in an expensive commercial litigation.  These employees are often left with no recourse and have no choice but to cave to their former employer’s unreasonable and anti-competitive demands.

Two recent New Jersey cases provide hope and a roadmap to fight against employers who unfairly attempt to use non-compete agreements to the detriment of the former employee and their ability to make a living.  Both cases illustrate that there are ways to fight back against employers who attempt to use non-compete agreements to restrain competition and retaliate against their former employees.

The first case, Abuaysha v. Shapiro Spa LLC, et al., Docket No.: BER-L-988-18, was brought by our firm, Smith Eibeler on behalf of a terminated employee. This case involves a former massage therapist who filed an emergent Order to Show Cause against her former employer to be relieved of her non-compete agreement after she alleged unlawful termination from her employment.  Specifically, the plaintiff alleged that she was unlawfully fired in retaliation for leaving work and taking leave in order in order to get medical treatment after being told that she may have contracted the shingles virus from a client upon whom she had just performed a massage.  The plaintiff alleged that she told her supervisor that she needed to leave work to get medical treatment to make sure she did not have shingles and that she would not perform any further massages until a doctor cleared her to return to work.  The employer terminated her when she returned to work after a few days of leave.

After the employer refused to voluntarily relieve her of the non-compete, the plaintiff filed suit for the unlawful termination under New Jersey’s whistleblower statute and also filed an emergency action for relief from the non-compete agreement.  In deciding the emergent application, the Court found that the plaintiff sustained her burden in establishing that she had suffered an undue hardship in being restrained from working due to the non-compete agreement.  This important decision demonstrates that an employer has no legitimate interest in restraining an employee’s post-termination activities when they are wrongfully terminated from their employment.  It also illustrates that one option an employee has to be relieved from post-termination restrictions is to file an action against their former employer on an emergency basis.

In another case, ADP, LLC v. Ultimate Software Group, Inc., filed in the United States District Court of New Jersey, plaintiff ADP initially filed a lawsuit against the defendant, Ultimate Software Group, Inc. claiming that they hired several former ADP employees in violation of their non-compete, non-disclosure, and non-solicitation agreement.  Ultimate Software Group counter-sued ADP for tortious interference with its prospective business relationships and unfair competition based upon their conduct in attempting to enforce the restrictive covenants.  ADP moved to dismiss the counterclaims by claiming that Ultimate Software Group failed to state a claim for tortious interference and unfair competition.

The District Court of New Jersey denied ADP, LLC’s Motion to Dismiss by holding that a plaintiff can sustain a claim of tortious interference with its prospective business relationships and unfair competition against a former employer for attempting to unlawfully restrain trade through a non-competition agreement.  Here, ADP was accused of using a non-compete agreement to hurt Ultimate Software Group Inc.’s competitive position in the market and create a “cloud of fear” over its current and former employees, through threats of enforcing the non-compete agreement against them.  While the Court did not rule on the merits of the claims at this early stage of the litigation, the Court recognized that a company can sustain an affirmative claim of tortious interference and unfair competition against a former employer who attempts to use a non-compete agreement inappropriately to restrict fair competition and the employment of former employees.  Although this case was brought by a company, the holding supports an employee’s ability to sustain legal claims against an employer for tortiously interfering with the employee’s ability to secure new employment through an inappropriate use of a non-compete agreement.

While there is still talk of non-compete reform being passed by the New Jersey legislature to create a more level playing field for employees who are unjustly restrained by former employers in their ability to secure new employment, these two cases provide two potential avenues for employees to pursue against employers who inappropriately attempt to restrict their ability to make a living. If you believe you are being unfairly restrained by a former employer in attempting to secure new employment, it is imperative that you promptly seek advice and counsel from a competent New Jersey employment lawyer who can properly assess your facts and circumstances and strategize an appropriate course of action for you.