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Al Dubin Glass Company v. Superior Glass, Inc.

A-3027-01T1 (N.J. Super. App. Div. 2003) (Unpublished)

NON-COMPETITION—A court will not enforce a non-competition agreement purporting to restrict low level, hourly employees from opening a competing business, especially where there is an open marketplace for consumers and enforcing such a restriction would harm the workers and stifle competition.

A glass installation company employed two brothers. Each employee signed anti-competition agreements barring him from competing with his employer for five years after leaving the company. It also barred him from taking away or attempting to take away other employees or customers. The brothers were neither key employees nor did they perform any management functions. They were hourly workers. When they signed the agreements, it was clear to them “that if they did not sign the agreement, they would be fired.” The agreements recited consideration in the form of “continued employment,” as well as payment of “salary and annual bonus.” The agreements also required each brother to acknowledge that while working for the company they might acquire “proprietary information” including such information as “formulas, data, techniques, strategies, contributions, customer lists, suppliers, knowhow ... and other business information that has commercial value.”

The brothers left and opened a competing company that drew a great deal of business from former customers of their former employer. In addition, they hired a co-worker to answer their own telephone. It was clear to the Court that “if the agreements were legally applicable to defendants, their activities would constitute a breach.”

The lower court pointed out that a “non-competition agreement will generally be found to be enforceable where it simply protects the legitimate interests of the employer, imposes no undue hardship on the employee, and is not injurious to the public.” Further, to be enforceable, “a restrictive covenant must be reasonable under all of the circumstances in the case.” With that in mind, the lower court found this particular agreement to be unreasonable and without consideration. It pointed out that “no additional financial incentive was offered. They could hardly be called key employees. They performed manual labor for wages.” Consequently, the lower court, having found that there was “no consideration for the agreement,” found the agreements to be unenforceable.

The Appellate Division agreed with the result, but disagreed that there was no consideration for the agreements. Under case law, “sufficient consideration may be found through continuation of employment.” Further, a verbalized threat of immediate discharge for failure to sign a non-competition agreement is not a necessary element because “[s]uch a consequence can be inferred from context.” According to the Court, it was clear that the former employer continued employment for the brothers for some time after the agreements were signed and thus, “provided sufficient consideration to [them] for the agreements.” On the other hand, the Appellate Division agreed with the lower court that the agreements were unreasonable. Here, the purpose of the agreements appeared to be principally that of lessening competition. The brothers’ “knowledge of [their former employer’s] customers and exposure to [their employer’s] pricing practices did not amount to interests that legitimately warrant[ed] protection. ... [They] were not high level employees who were given specialized training and exposure, but were common glass installers like several other employees working for [the old company]. Because it is quite easy to locate potential glass installation customers through car dealerships and body shops, for example, it [could not] be said that [the] customer lists deserve[d] the protection. [Further, the brothers] did not unfairly utilize any special knowledge to unreasonably compete with their former employer.” Lastly, the Court believed that enforcing the restrictive covenant would have placed a substantial limitation on where the brothers could find work and consequently would have been an undue hardship on the brothers. Given the “broad scope of precluded functions and the semi-skilled and specialized nature of [the brothers’] work, the restriction was held to be overbearing.” Further, it appeared to the Court that the brothers’ success had to do with their low prices and that “no public interest would be served by stifling [such] competition.”

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