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

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.

T

he much-anticipated New Jersey Supreme Court decision involving noncompete agreements and the Conscientious Employee Protection Act, (“CEPA”) is a significant victory for employers that require their employees to sign noncompete agreements as a condition of employment. In Maw v. Advanced Clinical Communications, Inc. (N.J. May 4, 2004), the Court held that the employee had not stated a cause of action against her employer under CEPA when the employer terminated the employee based upon her refusal to sign a noncompete. In so doing, the Court reversed the judgment of the Appellate Division and concluded that the private dispute between the employee and the employer did not implicate a violation of a clear mandate of public policy , as an element of CEPA requirements. In Maw, the employer, a marketing and educational services provider to the pharmaceutical and healthcare industries, hired the plaintiff in 1997 as a graphic designer. Four years later, the employer determined as a matter of company policy to require all employees at or above a certain level in the company to sign a noncompete agreement restricting them from working in the pharmaceutical and healthcare industries for two

• years. After consulting an attorney

, Maw proposed certain changes to the agreement. When her employer declined to consider those changes, Maw refused to the sign the agreement. The employer then terminated Maw’s employment for non- compliance with company policy . In her subsequent lawsuit, Maw alleged that the noncompete clause violated public policy under

G

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. 65 Livingston Avenue www.lowenstein.com

L

Roseland, New Jersey 07068-1791 Telephone 973.597.2500 Fax 973.597.2400

Employment Law Practice Group members Martha L. Lester, David M. Wissert and Lauren M. Hollender submitted a brief and appeared as amicus counsel for the New Jersey Defense Association, in support of an employer’s right to terminate an employee who refuses to sign a noncompete agreement.

CEPA and New Jersey common law because, as a graphic designer, she did not have any specialized knowledge of her employer’s business that would justify the need for a noncompete agreement. The trial court dismissed Maw’s claims, finding that she could not dictate the terms and conditions of her employment as an at-will employee. The trial court was also not persuaded that the noncompete clause violated public policy . On appeal, the Appellate Division reversed the trial court’s decision, holding that Maw had asserted sufficient facts to survive a summary dismissal. The Appellate Division did not decide whether the employer had violated public policy, but merely found that Maw had shown that her employer may have violated public policy by forcing her to sign the

• noncompete. In a vigorous dissent, one Appellate

Division judge ruled in the employer’s favor , asserting that the dispute between the parties was private in nature, and did not implicate a clear mandate of public policy as required under CEPA, and thus Maw had failed to state a claim. In its pro-employer ruling, the New Jersey Supreme Court adopted the reasoning of the dissenting Appellate Division judge and held that, for a plaintiff to state a claim under CEPA, the activity must have public ramifications and involve more than a private disagreement between the employer and the employee. Significantly , the Court concluded that the State’s public policy regarding noncompete agreements does not involve a clear mandate concerning the public health, safety , or welfare or protection of the

• environment. Instead, the Court determined that

there is no clearly established public policy with respect to the enforceability of noncompete agreements, that their enforceability will depend upon whether the noncompete protects the legitimate interests of the employer, does not impose an undue hardship on the employee, and is not injurious to the public. As the caselaw on noncompetes makes clear, the validity of a noncompete will be determined on a case-by-case basis at the time the employer seeks to enforce those agreements. The burden remains on the employer to prove the agreement is enforceable. It is clear that terminating an employee who refuses to sign a noncompete is not a violation of

• CEPA. Rather, the Maw Court determined the

G

The Court determined that there is no clearly established public policy with respect to the enforceability of noncompete agreements . . .

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

G

New Jersey employers should use the lessons learned from Maw to review their restrictive covenants and ensure their provisions are reasonable and comply with the case law governing such agreements.

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

• u 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.