News & Noteworthy

Authored - NJ Contract Law Update - Importance Of (1) A Signed Restrictive Covenant And (2) 'Bad Acts'
AUGUST 28, 2013 | Windels Marx - Commercial Litigation

In Family Karate Center v. Master Teachers Academy, 2013 WL 2494207 (N.J.App.Div. June 12, 2013), the Court emphasized the importance of a signed restrictive covenant when seeking to limit an employee's post-employment activities. The Opinion also makes it clear that a particularly fact-sensitive consideration of restrictive covenants and their history will always be undertaken by the Court.

In Family Karate, the following factual issues seem to have influenced the Court not to restrict the former employee's subsequent activities:

  1. The absence of a signed restrictive covenant.
  2. The fact that the defendant has been fired--and that the firing had occurred because he would not sign a restrictive covenant that extended to five years and twenty miles--which, although the Opinion does not specify, would certainly be problematic under New Jersey law.
  3. The fact that the defendant was not proven to have taken any material overt steps until after the termination.
  4. The fact that the defendant had worked for the plaintiff for so many years before being fired and had a personal relationship with the customers.
  5. The Court's arguable belief (based on facts and a record not known to this author) that some of the plaintiff's complaints were exaggerated or based on hearsay.
  6. The fact that there was no particular showing of any unlawful methods of solicitation of employees or customers.
  7. The Court's obvious impression that, by and large, the defendant was competing honestly.

Practice pointers--totally independent of whatever the Family Karate facts actually were or not:

  1. Whatever their limitations, having signed restrictive covenants is far better than not. While bad conduct prior to departure may be actionable in some circumstances, even in the absence of a signed restrictive covenant, see Lamorte Burns & Co., v. Walters, 167 N.J. 285, 298 (2001)--and counsel for a company would always want to emphasize and 'springboard' from bad behavior--a signed restrictive covenant with reasonable parameters is always far preferable.
  2. Any uncertainty regarding a bad act alleged--or a sense that there is a personal or emotional component, going beyond legitimate competitive concerns, that may seem to be giving rise to exaggeration about improper competition--will only harm, not help, the cause.

Contact & Legal Disclaimer

Clark Alpert is the author of Guide to New Jersey Contract Law, published by the New Jersey Institute for Continuing Legal Education, originally published in 2007 and updated in November 2011. His updates on New Jersey contract law are based in recent issues and practical methods for addressing similar situations in your practice or business. They are not intended to serve as legal advice. Clark welcomes your questions and comments.

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