Restrictive Covenants: The More Things Change The More They Stay The Same

As recent as 2019, in ADP, LLC v. Kusins, 460 N.J. Super. 368 (App. Div. 2019) and ADP, LLC v. Rafferty, 923 F.3d 113 (3d Cir. 2019), our New Jersey state and federal courts reiterated the long standing precedent known as the Solari/Whitmyer factors governing the enforceability of post-employment restrictive covenants. This test is similar to the test applied in New York and many other states that permit these restrictive covenants in the employer/employee setting.

Under the Solari/Whitmyer factors, a restrictive covenant is enforceable if it protects the legitimate business interests of the employer without imposing undue hardship on the employee, and is not injurious to the public. An employer’s legitimate business interests include the protection of trade secrets or proprietary/confidential information, as well as customer relationships. In some instances, investment or training of an employee can constitute a legitimate business interest. But an employer does not have a legitimate interest in simply preventing competition. Therefore, employers should ensure that their restrictive covenants protect only their legitimate business interests or otherwise risk a court finding the covenant to be unenforceable. If the employer can establish a legitimate business interest, the covenant should be enforceable provided that enforcement does not cause the employee an undue hardship or harm the public interest.

All three of these factors are routinely weighed by courts when confronted with a dispute between an employer and a former employee. The case law results are as diverse as the facts and circumstances of each case. Therefore, while these covenants are enforceable in New Jersey, New York, and many other states, each dispute requires a fact specific analysis and knowledge of how courts in each venue come out in each circumstance.