T Supreme Court decision involving policy to require all - PDF document

G Employment Law Alert May 2004 Termination of Employment for Refusal to Sign a Noncompete Does Not Violate Whistleblower Statute By David M. Wissert, Esq., Martha L. Lester, Esq. and Julie Levinson Werner, Esq. he much-anticipated New Jersey employer determined as a matter of company T Supreme Court decision involving policy to require all employees at or above a certain noncompete agreements and the level in the company to sign a noncompete Conscientious Employee Protection Act, (“CEPA”) agreement restricting them from working in the is a significant victory for employers that require pharmaceutical and healthcare industries for two their employees to sign noncompete agreements as years. After consulting an attorney , Maw proposed a condition of employment. In Maw v. Advanced Employment Law Practice Group Clinical Communications, Inc. (N.J. May 4, 2004), members Martha L. Lester, David the Court held that the employee had not stated a M. Wissert and Lauren M. Hollender submitted a brief and cause of action against her employer under CEPA appeared as amicus counsel for the when the employer terminated the employee based New Jersey Defense Association, in support of an employer’s right to upon her refusal to sign a noncompete. In so doing, terminate an employee who refuses to the Court reversed the judgment of the Appellate sign a noncompete agreement. Division and concluded that the private dispute between the employee and the employer did not certain changes to the agreement. When her implicate a violation of a clear mandate of public employer declined to consider those changes, Maw policy , as an element of CEPA requirements. refused to the sign the agreement. The employer In Maw , the employer, a marketing and then terminated Maw’s employment for non- educational services provider to the pharmaceutical compliance with company policy . and healthcare industries, hired the plaintiff in In her subsequent lawsuit, Maw alleged that the 1997 as a graphic designer. Four years later, the noncompete clause violated public policy under This document is published by Lowenstein Sandler PC to keep clients and friends informed about current issues. It is intended to provide general information only. L Roseland, New Jersey Telephone 973.597.2500 65 Livingston Avenue www.lowenstein.com 07068-1791 Fax 973.597.2400

G CEPA and New Jersey common law because, as a In its pro-employer ruling, the New Jersey graphic designer, she did not have any specialized Supreme Court adopted the reasoning of the knowledge of her employer’s business that would dissenting Appellate Division judge and held that, justify the need for a noncompete agreement. The for a plaintiff to state a claim under CEPA, the trial court dismissed Maw’s claims, finding that she activity must have public ramifications and involve could not dictate the terms and conditions of her more than a private disagreement between the employment as an at-will employee. The trial court employer and the employee. Significantly , the was also not persuaded that the noncompete clause Court concluded that the State’s public policy violated public policy . regarding noncompete agreements does not involve a clear mandate concerning the public The Court determined that there is health, safety , or welfare or protection of the no clearly established public policy environment. Instead, the Court determined that with respect to the enforceability of there is no clearly established public policy with noncompete agreements . . . respect to the enforceability of noncompete On appeal, the Appellate Division reversed the agreements, that their enforceability will depend trial court’s decision, holding that Maw had asserted upon whether the noncompete protects the sufficient facts to survive a summary dismissal. The legitimate interests of the employer, does not Appellate Division did not decide whether the impose an undue hardship on the employee, and is employer had violated public policy, but merely found not injurious to the public. As the caselaw on that Maw had shown that her employer may have noncompetes makes clear, the validity of a violated public policy by forcing her to sign the noncompete will be determined on a case-by-case noncompete. In a vigorous dissent, one Appellate basis at the time the employer seeks to enforce Division judge ruled in the employer’s favor , asserting those agreements. The burden remains on the that the dispute between the parties was private in employer to prove the agreement is enforceable. nature, and did not implicate a clear mandate of It is clear that terminating an employee who public policy as required under CEPA, and thus Maw refuses to sign a noncompete is not a violation of had failed to state a claim. CEPA. Rather, the Maw Court determined the

G appropriate recourse for an employee who is Nonetheless, terminating an employee who uncomfortable with the terms of a proposed refuses to sign a noncompete, like all terminations, noncompete is to either (i) refuse to sign the should be handled carefully. In the meantime, New noncompete and find a new job; (ii) sign the Jersey employers should use the lessons learned from Maw to review their restrictive covenants and New Jersey employers should use ensure their provisions are reasonable and comply the lessons learned from Maw to with the case law governing such agreements. review their restrictive covenants and Should you have any further questions with regard to ensure their provisions are reasonable CEPA, noncompete agreements, or any other and comply with the case law employment-related matters, please contact Martha L. governing such agreements. Lester, Esq., Chair of the Employment Law Practice Group, David M. Wissert, Esq., or Julie Levinson agreement and abide by its terms upon the Werner, Esq., members of the Employment Law separation of employment; or (iii) sign the Practice Group, at (973) 597-2500. agreement and compel the employer to go to court to attempt to enforce the agreement if the employer believes the employee is in breach.

G New Edition Coming Soon The new edition of “The Practical Guide to Federal and New Jersey Employment Law: The Employers’ Resource” includes: Federal Law Updates � Easy-to-Follow Index � New In-Depth Chapters � This Guide, published in connection with the New Jersey Business and Industry Association, is the resource for New Jersey employers seeking to comply with applicable Federal and State laws, regulations and procedures in the employment-related area. It provides management with critical information concerning existing laws, emerging trends, most frequently asked questions, and practical tips on managing the workforce and workplace. Y ou may also wish to obtain a copy of our currently published edition, “A Practical Guide to New Jersey Employment Law: The Employer’s Resource.” To obtain a copy, please contact Karen Cerreto at 973.422.6466 or email kcerreto@ lowenstein.com.