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All Phase Employment, Inc. v. Public Service Electric and Gas Company

A-1136-01T1 (N.J. Super. App. Div. 2003) (Unpublished)

EMPLOYER-EMPLOYEE; RESTRICTIVE COVENANTS—Where an employment contract unreasonably restricts an employee from obtaining future employment, it is unenforceable, such as when a temporary employment agency tries to bar former employees from signing up with a competing agency.

An employment agency provided temporary employees to a company. The employment agency’s contract with its employees contained a restrictive covenant that prohibited them, without the employment company’s permission, from working for any company at which they were placed. A company, who had been using the agency’s services, elected to use another agency for its temporary employment needs and the employment agency’s temporary employees subsequently became employees of the second agency. The employment agency sued the other agency and the company for tortious interference with its contractual relationship with the temporary workers. On a motion for summary judgment, the lower court ruled that because the employment agency’s contract unreasonably restricted the temporary employees from obtaining future employment it was unenforceable. The Appellate Division affirmed. In order to find tortious interference with a contract, there must be a protectable right or interest. A restrictive covenant that protects an employer’s legitimate interests without imposing undue hardships on its employees or the public is a reasonable and protectable interest. A restrictive covenant designed to protect client lists or confidential trade secrets is reasonable. However, in this case, the temporary employees had no access to client lists or confidential information. The sole purpose of the restrictive covenant was to stifle competition by preventing the employees from working elsewhere, to the detriment of the public interest. The Court found that, because the contract was against public policy and therefore unenforceable, the company and the other agency could not be guilty of tortious interference.

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