Facts
- Solari America, Inc. (NY) and later Solari Industries, Inc. (NJ) sold teleindicator (“informational board”) systems for airports and rail terminals in the United States.
- Joseph J. Malady, previously active in the teleindicator field, became a senior executive of Solari America under an employment agreement that included a post-employment noncompetition covenant.
- In connection with a reorganization, Solari Industries was formed in January 1969; Malady entered a new employment contract effective January 1, 1969.
- The 1969 contract provided it would be governed by New York law, set compensation including commissions on teleindicator sales, and included a restrictive covenant.
- The covenant barred Malady, for one year after termination “for any reason,” from directly or indirectly promoting or selling products similar to or competitive with Solari’s, without board consent.
- The covenant contained no express geographic limitation and was broadly worded as to competitive activity.
- After Malady’s relationship with his supervisor deteriorated, he left and began distributing competing products in the United States and Canada, contacting existing and prospective Solari customers.
- Solari sought an injunction to enforce the restrictive covenant and stop Malady’s competing sales efforts.
Issues
- Whether New Jersey courts must apply the contract’s New York choice-of-law clause to enforce the restrictive covenant, or may apply New Jersey public policy.
- Whether an overbroad post-employment restrictive covenant is void per se, or may be enforced to a reasonable extent through judicial modification.
Decision
- The New Jersey Supreme Court reversed the trial court’s denial of interim injunctive relief insofar as it rested on a rule that the covenant was void per se.
- The Court held New Jersey could apply its own public policy to the enforceability of the restrictive covenant despite the New York choice-of-law provision.
- The Court rejected categorical invalidation of overbroad employee restrictive covenants and adopted a partial-enforcement approach.
- The case was remanded for fact development and application of the reasonableness standard to determine whether, and to what extent, injunctive relief should issue.
Legal Principles
- Enforceability of post-employment restraints turns on reasonableness under the circumstances, not facial breadth alone.
- A restrictive covenant may be enforced only to the extent reasonably necessary to protect the employer’s legitimate interests (e.g., confidential information, customer relationships), not merely to suppress ordinary competition.
- Courts must weigh (1) the employer’s protectable interests, (2) whether enforcement imposes undue hardship on the employee, and (3) whether enforcement would harm the public interest.
- When a covenant is broader than necessary, a court may narrow and enforce it in modified form (partial enforcement), rather than invalidating it entirely.
- A contractual choice-of-law clause will not control if its application would contravene New Jersey’s fundamental policy governing employee restrictive covenants in the circumstances presented.
Conclusion
The New Jersey Supreme Court replaced per se invalidation of overbroad employee noncompetes with a partial-enforcement approach requiring courts to tailor enforcement to what is reasonable to protect legitimate employer interests without undue employee hardship or public injury, and remanded for application of that standard.