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New Jersey Court Rejects Whistleblower Claim for Refusal to Sign Non-compete Agreement

By Richard J. Cino
  • May 12, 2004

The New Jersey Supreme Court has resolved an important debate regarding an employee's ability to use the state's whistleblowing statute, the Conscientious Employee Protection Act, to challenge an employment termination for refusing to sign a non-compete agreement. In Maw v. Advanced Clinical Communications, Inc. (NJ Sup Ct, May 4, 2004), the court held that an employee's private dispute concerning a non-compete clause in an employment agreement does not implicate a violation of a clear mandate of public policy as contemplated by CEPA. As such, a termination resulting from an employer's requirement that an existing employee execute a non-compete agreement as a condition of continued employment was not actionable under CEPA.            

Non-compete agreements, or restrictive covenants, have generally been accepted as an effective way for an employer to protect its intellectual property, trade secrets, and propriety information. However, to be valid, a non-compete agreement must be reasonable; otherwise, it will be considered to be unlawful and unenforceable as a restraint on trade. New Jersey courts have determined agreements to be reasonable if they protect the legitimate interests of the employer while imposing no undue hardship on the employee or injury to the public. Ingersoll-Rand Co. v. Ciavatta, 110 N.J. 609, 628 (1988).

In the Maw case, as part of a promotion after three and one-half years of service, the employee was required to sign a non-compete agreement as a condition of continued employment. Although she was told she could seek legal advice regarding the non-compete agreement, the employer rejected the employee's proposed changes, and she refused to sign. Subsequently, she was terminated for failure to comply with company policy. Alleging the termination to be an impermissible retaliatory action, the employee sued her former employer under the state's whistleblower law, the Conscientious Employee Protection Act. Although the trial court found she had failed to assert a sufficient public policy interest under CEPA and dismissed the claim, the Appellate Division reversed and allowed her to proceed.

Carefully scrutinizing the language of the statute, the New Jersey Supreme Court questioned whether the employer's proposed non-compete agreement was "incompatible with a clear mandate of public policy concerning public health, safety or welfare or protection of the environment," as required by CEPA. Finding no "clear mandate" of state policy regarding non-compete agreements, and no relation to public health, safety, or welfare, the court summarily rejected her claim.

Recognizing that New Jersey law clearly establishes the enforceability of non-compete agreements in appropriate circumstances, the court characterized the dispute as private in nature and not within the purview of CEPA. In support of its decision, the court determined that the former employee's only issue with her employer's non-compete clause involved "her [self-proclaimed] ability to find employment in her field" and her concern that there was "no legitimate business reason for defendants to require her to enter into a non-compete agreement." The court reasoned that because the private nature of the claim is inconsistent with the goals and intentions of CEPA -- to protect the public interest -- the CEPA claim had to be dismissed.

Rejecting the employee's attempt to recast a traditional contract dispute as a CEPA action, the holding in the Maw case demonstrates that an employee cannot use CEPA as a weapon against an employer seeking to require its employees to sign a non-compete agreement. However, New Jersey employers always should exercise restraint and make certain that such covenants are reasonable and designed to protect the legitimate interests of the employer.

©2004 Jackson Lewis P.C. This material is provided for informational purposes only. It is not intended to constitute legal advice nor does it create a client-lawyer relationship between Jackson Lewis and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material. This material may be considered attorney advertising in some jurisdictions. Prior results do not guarantee a similar outcome.

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