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No-compete clauses in at-will workers’ employment agreements do not implicate a clear mandate of public policy as contemplated by the Conscientious Employee Protection Act, the New Jersey Supreme Court ruled last week. In a closely watched case, the justices decided against an outright ban on such provisions, finding that a worker dissatisfied with an employment agreement’s terms is free to dispute their reasonableness if and when the employer attempts to enforce them. Karol Maw, a senior graphic artist for a pharmaceutical marketing company, was fired in March 2001 for refusing to sign an agreement that would bar her from working for any competitor for at least two years after leaving the company. Maw conceded she possessed confidential and proprietary information and she had no objection to the preclusion against sharing that information with future employers, but she thought the two-year restriction on employment went too far. A trial judge dismissed the CEPA claim but the Appellate Division reinstated it, finding that no-compete clauses violate a public policy of letting workers move freely from job to job. The per curiam ruling couched the case as essentially a private contract dispute, not a matter with public policy ramifications. “It is telling that plaintiff uniformly refers to the effect that signing the noncompete agreement would have on ‘her ability to find employment in her field,’ and that ‘she believed that there was no legitimate business reason for defendants to require her to enter into a noncompete agreement,’” the court wrote in Maw v. Advanced Clinical Communications Inc., A-99-02. Two justices dissented, saying overly restrictive noncompete agreements violate public policy and that the company in this case could not demonstrate that its noncompete agreement was reasonable. Justice James Zazzali, joined by Justice Virginia Long, said that for “more than 400 years, Anglo-American jurisprudence has recognized the public-policy implications of noncompete agreements.” Lawyers on both sides of employment practice have been anxiously awaiting the court’s ruling, and their reactions last week were predictable. “The law is right back where it should be,” says Debbie Sanders, representing Advanced Clinical Communications Inc., the defendant employer. “The plaintiff tried to create a new cause of action under CEPA, but that’s up to the Legislature � The ruling gives employers one less thing to get sued for, and my clients are grateful for that,” says Sanders, a partner at Philadelphia’s White and Williams. Mark Saloman, who argued amicus on behalf of the Employers Association of New Jersey, says no-compete provisions are not abused in the workplace, and the majority of the Court understood that. “It is not as extreme as the minority seeks to portray. The fears are misplaced,” says Saloman, a partner at Proskauer Rose in Newark. “The fact that the [lawmakers] have failed to do anything for years leads me to believe they are not going to do anything any time soon.” Maw’s lawyer, Richard Schall, is more than a little disappointed. “This is a real travesty of justice,” he says. “The majority looked too narrowly at CEPA and failed to understand the public policy implications.” The majority’s ruling amounts to a “judicial blessing of a form of indentured servitude,” says Schall, of Schall & Barasch in Moorestown. Alan Schorr, representing the amicus National Employment Lawyers Association-New Jersey, says, “I’m dumbfounded at the Supreme Court’s conclusion that an employee’s right to move from job to job does not implicate public policy.” Schorr, who owns a Marlton firm, says the Court has given employers carte blanche. “I can envision an employer giving all employees a restrictive covenant that says if they leave for any reason, including getting fired, they can never work in that industry anywhere ever again,” he says. LITERALLY SPEAKING In Maw, the court for the first time confronted the literal meaning of the provision of CEPA that prohibits employer retaliation against an employee who “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 public health, safety or welfare or protection of the environment.” N.J.S.A. 34:19-c(3). The phrase “clear mandate of public policy” is key, the majority said. “A ‘clear mandate’ of public policy suggests an analog to a constitutional provision, statute and rule or regulation promulgated pursuant to law such that � there should be a high degree of public certitude in respect of acceptable versus unacceptable conduct. The legislative approach vis-a-vis a ‘clear’ mandate of public policy bespeaks a desire not to have CEPA actions devolve into arguments between employees and employers over what is, and is not, correct public policy.” The majority relied on three precedents: Mehlman v. Mobil Oil Corp., 153 N.J. 163 (1998); Solari Industries Inc v. Malady, 55 N.J. 571 (1970); and Whitmyer Bros. Inc. v. Doyle, 58 N.J. 25 (1971). In Mehlman, the court ruled that a “helpful limited principle” for CEPA claims should be that the conduct implicates the public interest. The majority acknowledged that there was a historical trend toward disfavoring restrictive covenants. But, it added, “ Solari was a turning point � [W]e held then ‘that the time is well due for the abandonment of New Jersey’s void per se rule in favor of the rule which permits the total or partial enforcement of non-competitive agreements to the extent reasonable under the circumstances.’” The court said Whitmyer established what is now called the Solari/Whitmyer test for looking at whether a noncompete provision is enforceable. Under the test, the agreement is enforceable “if it ‘simply protects the legitimate interests of the employer, imposes no undue hardship on the employee and is not injurious to the public.’” The court must determine whether a noncompete in an employment agreement fairly balances out the needs of employers versus the rights of employees, the majority said. “ Solari/Whitmyer has now become an accepted part of the common law, not only in New Jersey but also in other jurisdictions across the country,” the majority said. The majority noted that the amicus parties said noncompete provisions are not common at this point. “We do not accept as a premise that employers, in large numbers, are engaging in a practice” that is dangerous to public health, safety or welfare. The court concluded by saying Maw had other options rather than filing a claim under CEPA. “If she could not negotiate terms that were to her liking, she was free to dispute the reasonableness of those terms if and when her employer attempted to enforce the agreement,” the majority said. “The burden would then be on the employer to hire counsel and initiate enforcement litigation � and nothing would preclude an employee-defendant in such an action from asserting any and all affirmative defenses and counterclaims.” QUOTING THE QUEEN’S BENCH Zazzali, in a 19-page dissent — twice as long as the majority ruling — said the majority “fails to apprehend” the clear implications of public policy illustrated in Maw and ignores four centuries of Anglo-American case law. As far back as a 1602 Queen’s Bench decision, Colgate v. Bacheler, courts have looked askance at restrictive covenants as being against public policy. Zazzali quoted liberally from Harlan Blake’s article, “Employee Agreements Not to Compete,” 73 Harv. L. Rev. 625 (1960), about the history of restrictive covenants being held against public policy. The most cited case, Blake wrote, is Mitchel v. Reynolds, 24 Eng. Rep. 347 (Q.B. 1711). Zazzali wrote: “[The Chief Justice] discerned the various interests implicated by voluntary restraints of trade. He observed that such agreements can result in ‘mischief � to the party, by the loss of his livelihood, and the subsistence of his family � [and] to the publick, by depriving it of a useful member.’” Zazzali said the majority also ignored case law prior to Solari and Whitmyer, citing Mandeville v. Harman, 42 N.J. Eq. 185 (Ch. 1886). “[O]ur jurisprudence, time and time again, has made clear that such restraints of trade implicate other, public interests,” Zazzali said. “Such repeated instruction by the judiciary amounts to a clear mandate that overly restrictive covenants in restraint of future employment are in violation of New Jersey public policy.” Schall says that while Zazzali’s opinion is interesting for its historical value, it does little else. “It doesn’t do me any good because it’s a dissent,” he says. “Maybe he’s trying to get the Legislature involved to see if it can undo what the majority hath wrought.”

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