In an important decision favoring employers, the New Jersey Supreme Court held, on May 4, 2004, that an employee did not have a cause of action for unlawful retaliatory discharge under the New Jersey Conscientious Employee Protection Act ("CEPA") or common law, even though she was fired for refusing to enter into an agreement containing post-employment restrictions. Maw v. Advanced Clinical Communications, Inc., et al., 2004 WL 943523, 846 A.2d 604 (2004).
Karol Maw had been employed by Advanced Clinical Communications for approximately four years before Advanced instituted a new policy requiring all employees holding positions above a certain grade to sign a non-compete agreement in consideration of their continued employment. The agreement's restrictions would have precluded Maw from, among other things, accepting employment with a competitor or customer of Advanced for a period of two years following her termination of employment. Maw attempted to negotiate the terms of the agreement with Advanced, but Advanced would not agree to any language changes. Because Maw refused to sign it, she was terminated for "noncompliance with company policy."
Maw brought a "whistleblower" suit against Advanced under CEPA and New Jersey common law for wrongful termination in violation of public policy. The CEPA provision under which Maw sued prohibits an employer from taking retaliatory action against an employee who "objects to, or refuses to participate in any activity, policy or practice which the employee reasonably believesÂ…is incompatible with a clear mandate of public policy concerning public health, safety or welfare or protection of the environment." N.J.S.A. 34:19-3(c)(3). Maw argued that the non-compete agreement violated public policy because Advanced had no legitimate reason for requiring her to sign it and, thus, her discharge for refusing to sign it was illegal.
The Court reviewed its previous decisions holding that in order to be covered by CEPA, the complained of activity must have public ramifications and the dispute between the employer and employee must be more than a private disagreement. The Court concluded that Maw's true dispute was over the reasonableness of the terms of her private agreement with Advanced and, as such, it did not implicate public health, safety or welfare. According to the Court, because no public interest was at stake, CEPA and the common law were inapplicable to Maw's claims.
The Court rejected Maw's argument that non-compete agreements are disfavored in New Jersey. Maw should not be construed, however, as a judicial endorsement of overreaching or unreasonable post-employment restrictions. Indeed, the Court in Maw reiterated its prior decisions holding that a non-compete agreement is enforceable in New Jersey only if it (1) protects the legitimate interests of the employer, (2) imposes no undue hardship on the employee, and (3) is not injurious to the public. Maw, the Court observed, was not without a remedy. She remained free to dispute the reasonableness of the non-compete agreement if Advanced sought to enforce it against her.
In sum, while New Jersey employers may still condition an employee's continued employment on his or her agreement to be bound by post-employment restrictions, Maw reaffirms that employers must continue to be cautious in drafting such agreements to ensure that they will be deemed reasonable, and thus enforceable, in light of all of the foregoing factors.
Gary S. Prish is Senior Counsel in Littler Mendelson's Newark, NJ, office. If you would like further information, please contact your Littler attorney at 1.888.Littler, info@littler.com, or Mr. Prish at gprish@littler.com