Lead Opinion
Plaintiff, Karol Maw, filed this action
I.
CEPA 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 believes ... 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 — 3c(3) (Section 3c(3)). In this ease we confront for the first time a question as to the meaning of the phrase “clear mandate of public policy.” More specifically, we must determine the contours and scope of a “clear mandate” sufficient to assert a claim under Section 3c(3). We begin with the observation that a public policy expressed in the form of a statute, rule or regulation promulgated pursuant to law, is not what was meant under Section 3e(3). To so hold would reduce N.J.S.A. 34:19 — 3c(1) (Section 3c(l)) to mere surplusage, since it employs those legal precepts as a frame of reference for evaluating an employer’s conduct.
That said, Section 3c(l) is helpful in resolving the question before us. Like Section 3c(l), the reference in Section 3c(3) to a “clear mandate of public policy” conveys a legislative preference for a readily diseemable course of action that is recognized to be in the public interest. A “clear mandate” of public policy suggests an analog to a constitutional provision, statute, and rule or regulation promulgated pursuant to law such that, under Section 3c(3), there should be a high degree of public certitude in respect of acceptable verses unacceptable conduct. Indeed, prior decisions involving CEPA claims have reasoned similarly when discussing Section 3c(3) claims. E.g., Higgins v. Pascack Valley Hosp., 158 N.J. 404, 420,
The dissent below is in accord with our analysis in respect of its discussion of both the purpose of CEPA, Maw, supra, 359 N.J.Super. at 444-446,
II.
In this matter, plaintiffs dispute with her employer is private in nature. Plaintiff concedes that she possessed eonfidential and proprietary information, and that she had no objection to those portions of the noncompete agreement that would preclude her from sharing such information with future employers. In other words, plaintiffs true dispute was over the reasonableness of the terms of the noncompete agreement, an argument she was free to make if and when her employer tried to prevent her from working at another company. It is telling that plaintiff uniformly refers to the effect that signing the noncompete agreement would have on “her ability to find employment in her field,” and that “she believed that there was no legitimate business reason for defendants to require her to enter into a noncompete agreement.” (Emphasis added). Allowing plaintiffs admittedly private dispute with her employer to go forward under CEPA’s rubric dilutes the statute’s salutary goals.
The private nature of plaintiffs dispute notwithstanding, her CEPA claim must fail because our State’s public policy respecting noncompete agreements is not set forth in a “clear mandate,” and does not “concem[] the public health, safety or welfare or protection of the environment.” N.J.S.A. 34:19 — 3c(3). Over a generation ago, our Court sketched the broad parameters for determining whether a noncompete agreement was unenforceable. Whitmyer Bros., Inc. v. Doyle, 58 N.J. 25,
But Solari was a turning point, for we held then “that the time is well due for the abandonment of New Jersey’s void per se rule in favor of the rule which permits the total or partial enforcement of noncompetitive
Although our dissenting colleagues may contend that do-not-eompete provisions are, or should be, per se illegal, in point of fact, they are not illegal per se. It is not accurate to describe our current caselaw, which allows enforcement of reasonable non-compete agreements, as a “clear mandate” that disfavors such agreements. The Solari/Whitmyer test is a multi-part, fact-intensive inquiry. Not only must multiple interests of differing parties and entities be identified, but also, those interests must be gauged for reasonableness and legitimacy. The application of that test here, and as a general matter, simply does not evoke the type of a “clear mandate of public policy” that was contemplated by N.J.S.A. 34:19-3c(3).
We are informed by the amici that non-compete agreements are a common part of commercial employment. We do not accept as a premise that employers, in large numbers, are engaging in a practice that is “indisputably dangerous to the public health, safety or welfare.” Dzwonar, supra, 177 N.J. at 464,
We conclude that plaintiffs private dispute over the terms of the do-not-compete provision in her employment agreement does not implicate violation of a clear mandate of public policy as contemplated by Section 3c(3) of CEPA. As previously noted, plaintiff did have options available to her. If she could not negotiate terms that were to her liking, she was free to dispute the reasonableness of those terms if and when her employer attempted to enforce the agreement. The burden then would be on the employer to hire counsel and initiate enforcement litigation, Solari, supra, 55 N.J. at 574,
III.
The judgment of the Appellate Division is reversed.
Dissenting Opinion
dissenting.
As fully set forth in the majority opinion of the Appellate Division, the facts of this case concern an employee who was fired for refusing to sign a non-compete agreement. She brought suit against her employer, alleging that her termination violated the Conscientious Employee Protection Act (CEPA), N.J.S.A. 34:19-1 to -8, and her common-law right against discharge contrary to public policy. Because the allegations of the complaint implicate a clear mandate of public policy that the majority, in adopting the dissent below, fails to apprehend, I must respectfully dissent.
I.
This ease comes to the Court on a motion to dismiss for failure to state a claim. Therefore, the facts as alleged in the complaint, as well as all reasonable inferences to be drawn therefrom, must be taken as true. Craig v. Suburban Cablevision, Inc., 140 N.J. 623, 625-26,
In 1997, plaintiff Karol Maw began working for defendant Advanced Clinical Communications, Inc., as a graphic designer. Plaintiff had been performing well enough to warrant a promotion to the position of Senior Graphic Designer in January 2000. Thereafter, pursuant to a new company policy promulgated in January 2001, defendant required all of its employees at or above the level of “coordinator” to sign a non-eompete agreement as a condition of continuing employment. Among other things, it provided that upon ceasing to work for defendant, the employee would be enjoined from working for any competitor or customer of defendant for a period of two years.
Plaintiff was presented with a copy of the proposed “Noncompete Covenant,” which informed her that she was free to seek the advice of counsel with respect to the document. Plaintiff consulted her father, an attorney, who suggested some changes. Plaintiff presented those revisions to defendant’s Human Resources Department. A representative of that department informed her, however, that “it is the President’s [cjompany and ... he is not going to make any exceptions.” Plaintiff did not sign the document, prompting defendant to inform her by letter that she had been “terminated based on noncompliance with company policy.”
Plaintiff filed suit, claiming that her employer violated CEPA and the common-law right against termination in violation of a clear mandate of public policy. Defendant moved to dismiss the claim for failure to state a claim upon which relief can be granted. R. 4:6-2(e). The Law Division granted the motion, finding that the complaint failed to aver a sufficient public-policy interest within the meaning of CEPA and that, similarly, it lacked the requisite showing to state a claim under the common law.
The Appellate Division reversed. Maw v. Advanced Clinical Communications, Inc., 359 N.J.Super. 420,
The dissent, however, stated that the Law Division did not err in dismissing the complaint, because “an employee’s interest in freely moving from employer to employer is primarily a private interest beyond the protection provided by CEPA” Id. at 442,
Because of the dissent in the Appellate Division, defendant appealed as of right. R. 2:2-1(a)(2). This Court now adopts the analysis of the dissent below, finding no clear mandate of public policy sufficient to render this matter anything but a dispute merely “private in nature.” Ante 179 N.J. at 445,
II.
A.
The Conscientious Employee Protection Act provides, in pertinent part, that
[a]n employer shall not take any retaliatory action against an employee because the employee ... [o]bjects to, or refuses to participate in any activity, policy or practice which the employee reasonably believes ... is incompatible with a clear mandate of public policy concerning the public health, safety or welfare or protection of the environment.
[N.J.S.A. 34:19-3 (emphasis added).]
The elements necessary to state a claim for wrongful termination under that provision of CEPA are not in dispute. A plaintiff
must demonstrate that: (1) he or she reasonably believed that his or her employer’s conduct was violating either a law, rule, or regulation promulgated pursuant to law, or a clear mandate of public policy; (2) he or she performed a “whistle-blowing” activity described in N.J.S.A. 34:19 — 3c; (3) an adverse employment action was taken against him or her; and (4) a causal connection exists between the whistle-blowing activity and the adverse employment action.
[Dzwonar v. McDevitt, 177 N.J. 451, 462,828 A.2d 893 , 900 (2003).]
As in Dzwonar, the viability of the present claim hinges on whether the complaint satisfies the first prong of the four-prong test. That is, it appears clear that plaintiff meets the other three prongs because she refused to participate in an activity (i.e., entering into the agreement) and was fired as a direct consequence of that refusal.
B.
For more than four hundred years, Anglo-American jurisprudence has recognized the public-policy implications of non-compete agreements. See Harlan M. Blake, Employee Agreements Not to Compete, 73 Harv. L. Rev. 625, 635-36 (1960) (tracing jurisprudence of post-employment restraints to Dyer’s Case in Court of Common Pleas in 1414 and first public-policy explanation for invalidating them to Colgate v. Bacheler, decided by Queen’s Bench in 1602). In the “most cited case on common-law restraints of trade,” and perhaps the most influential opinion on the subject ever issued, Chief Justice Parker of Queen’s Bench explored the interests, both public and private, at stake when a citizen contracts away his right to work at his chosen craft. Blake, supra, 73 Harv. L. Rev. at 629 (citing Mitchel v. Reynolds, 24 Eng. Rep. 347 (Q.B. 1711)).
In Mitchel, the defendant leased some buildings including a bakehouse to the plaintiff. 24 Eng. Rep. at 347. The terms of their agreement included a provision that the defendant would “not exercise the trade of a baker” within the parish of St. Andrew’s Holborn during the five-year term of the lease. Ibid. If the defendant were to violate the term, and set up a competing shop, the plaintiff would be entitled to fifty pounds. Ibid. The plaintiff brought suit to enforce the provision; the defendant, however, maintained that the agreement was void. Ibid.
Examining prior case law, the Chief Justice discerned the various interests implicated by voluntary restraints of trade. Id. at 350. He observed that such agreements can result in “mischief ... to the party, by the loss of his livelihood, and the subsistence of his family ... [and] to the publiek, by depriving it of a[ ] useful member.” Ibid. The court then further explained the aggregate harm occasioned by such restrictions that extends beyond the concerns of the contracting parties:
Another reason is, the great abuses these voluntary restraints are liable to; as for instance, from corporations, who are perpetually labouring for exclusive advantages in trade, and to reduce it into as few hands as possible; as likewise from masters, who are apt to give their apprentices much vexation on this account, and to use many indirect practices to procure such bonds from them, lest they should prejudice them in their custom, when they come to set up for themselves. [/6td]
The court acknowledged the circumstances in which such restrictive arrangements might be “useful and beneficial,” for instance, “to prevent a town from being overstocked with any particular trade” or to facilitate the sale of a business or trade no longer profitable to its proprietor. Ibid. In weighing those competing considerations, however, the court concluded that the mischief “plainly appears ... but the benefit (if any) can only be presumed.” Id. at 351. Underscoring the point that the mischief is “not only private, but public,” the court pronounced the rule to be that the law will presume such contracts “prima facie to be bad” until the facts of
Applying the rule to the facts of that particular case, the court held that the plaintiff had overcome the presumption of invalidity because it would have been unjust to allow the defendant to receive the benefit of the lease agreement while permitting him to renege on his promise to allow the plaintiff to have the benefit of the “trade in this neighborhood.” Id. at 352. Finding the restraint to be “exactly proportioned to the consideration” — inasmuch as the five-year term of the restraint was coextensive with that of the lease — the court determined “the concern of the public [to be] equal on both sides,” and held the restriction enforceable. Ibid. Thus, the court kept public, as well as private, concerns keenly within its focus throughout its analysis.
Consistent with the approach in Mitchel, in New Jersey historically we have presumed such covenants to be invalid as restraints on trade and, therefore, violative of public policy unless an employer demonstrates the reasonableness of its agreement. Mandeville v. Harman, 42 N.J. Eq. 185, 189,
the restraint is such only as to afford a fair protection to the interest of the party in favor of whom it is given, and not so large as to interfere with the interest of the public. Whatever restraint is larger than the necessary protection of the party can be of no benefit to either. It can only be oppressive, and if oppressive, it is, in the eye of the law, unreasonable and void, on the ground of public policy, as being injurious to the interests of the public. The rule, as thus stated, is the law of this state.
[Id. at 190, 7 A. at 39.]
In another case involving a non-eompete agreement, by which an employee had “restrained himself, generally and absolutely, without limitation as to time or place, from exercising his talents and skill in making gig-saddles and coach-pads,” Vice Chancellor Fleet held that “such a contract is void, on account of its repugnancy to public policy.” Albright v. Teas, 37 N.J.Eq. 171, 173 (Ch. 1883). Elaborating upon the public-policy implications of such a covenant, he explained, “It prevents competition, and thus enhances prices, and exposes the public to all the evils of monopoly.” Ibid.
In more recent cases, we have echoed the concerns regarding restrictive covenants that originally were articulated in Mitchel, explicitly recognizing both the private and the public interests implicated by these restraints on trade. For instance, in Solari Industries, Inc. v. Malady, 55 N.J. 571, 576,
This brief historical overview demonstrates that vindication of the public interest has consistently been at the heart of our interpretation of eovenants-not-to-compete. More is at stake than merely the isolated subjugation of a single worker. Although the “undue hardship” prong of Solari, supra, takes that consideration into account, our jurisprudence, time and time again, has made clear that such restraints of trade implicate other, public interests. Such repeated instruction by the judiciary amounts to a clear mandate that overly restrictive covenants in restraint of future employment are in violation of New Jersey public policy.
Although the majority attempts to make much of this Court’s rejection of the so-called “per se” rule in Solari, supra, 55 N.J. at 585,
The majority’s gloss notwithstanding, non-compete agreements were not as a general rule “per se void” prior to Solari. Instead, the per se rule concerned specifically the severability of non-compete agreements that were found to be unenforceable as written. 55 N.J. at 583,
So understood, Solari does not represent a bold departure from prior case law treating non-compete agreements. Covenants not to compete were enforceable prior to our decision in that case. See, e.g., Mandeville, supra, 42 N.J.Eq. at 189-90,
III.
In spite of the manner in which non-compete agreements consistently have been viewed, the majority adopts the assessment of the dissent below that “an employee’s interest in freely moving from employer to employer is primarily a private interest beyond the protection provided by CEPA,” Maw, supra, 359 N.J.Super. at 442,
Defendant’s alternative argument in support of its motion to dismiss proves equally unpersuasive. It posits that until it attempts to enforce the agreement, there is no way of telling whether or not the restriction is unreasonable. Thus, the argument runs, plaintiff could not have held a reasonable belief that the covenant was in violation of public policy until the employer attempted enforcement. In support of that theory, defendant places particular weight on the clause of the proffered agreement that provides that permission to allow employees to work elsewhere will not be unreasonably withheld. The majority of this Court implicitly embraces that argument by observing that the deprivation of a CEPA cause of action does not leave plaintiff without a remedy inasmuch as she “was free to dispute the reasonableness [of the non-compete agreement] if and when her employer attempted to enforce the agreement.” Ante 179 N.J. at 448,
That reasoning stumbles on a number of levels. First, in stating that this employee was free to challenge this restrictive covenant in another forum, the majority fails to acknowledge that traditional contract remedies are inadequate to vindicate the public interest at stake in this type of dispute. Absent a cause of action under CEPA or the common law’s public-policy exception to termination of an at-will employee, nothing prevents an employer from demanding that such an employee agree to the most unreasonably restrictive non-compete agreement as a condition of continuing employment. Should the employee refuse, today’s holding allows the employer to terminate with impunity and leaves the employee but one avenue of real relief: find another job.
Second, the majority’s approach ignores the obvious in terrorem effect such covenants
Third, as noted, the fundamental policy and law in this State is that covenants-not-to-compete are in violation of public policy until proven otherwise — that is, until the employer demonstrates that they are reasonable. Consistent with that approach, in the CEPA context, as in common-law or equitable actions treating such agreements directly, the employer should bear the burden of demonstrating that in the circumstances of a particular case, the proffered agreement would have been enforceable as a reasonable restriction. In the CEPA context, as in the more traditional common-law scenario, that presents a question for the court. In either setting, however, that determination cannot be made on the pleadings. Although it is a question for the bench and not the jury, it constitutes an inquiry that must be made in conjunction with a review of the relevant facts. The outcome will hinge on, among other things, the legitimate business interests of the employer that are to be served by the restriction in relation to the geographic, temporal, and substantive restraints placed upon the employee. Although such an inquiry may prove possible at the summary-judgment stage of the proceedings — at which time, the employer may well prevail — a court bound by the averments of a complaint cannot make such a ruling on a motion to dismiss.
Accordingly, the better approach, which would adequately safeguard the concerns of the employer while simultaneously vindicating the public interest, would be to hold that a plaintiff has stated a claim under CEPA when she has alleged that she refused to sign a non-compete agreement that she believed to be in violation of public policy. The employer would then be afforded the opportunity to demonstrate the reasonableness of the proffered agreement as a defense to the action. On that basis, I would affirm the judgment of the Appellate Division and allow the complaint to go forward.
I am aware of the concern by some that allowing a cause of action in these and similar circumstances might have a chilling effect on employers’ legitimate use of non-compete agreements, but that argument is unavailing. The approach I propose would have the salutary effect of encouraging employers to enter into agreements that comply with, rather than flout, sound public policy. Employers who do draft restrictive covenants tailored to serve their legitimate business interests can be confident of prevailing against a subsequent challenge for wrongful dismissal under CEPA or the common law should they choose not to retain an at-will employee who refuses to agree to reasonable terms. Moreover, such employers will be able to enforce executed agreements incorporating those terms in a court of equity. Conversely, the fact that illegitimate agreements will be disfavored should present no cause for concern.
IV.
In sum, I would hold that plaintiff has set forth allegations in her complaint that state a claim for wrongful termination under both CEPA and the common law. There exists in this State a clear mandate that overly restrictive non-compete agreements
Justice LONG joins in this opinion.
For reversal — Chief Justice PORITZ and Justices VERNIERO, LaVECCHIA and WALLACE — 4.
For affirmance — Justices LONG and ZAZZALI — 2.
Notes
Because the same test concerning the requisite demonstration of public policy applies under Pierce, the Appellate Division held that plaintiff stated a claim under the common law. Maw, supra, 359 N.J.Super. at 441,