J. H. Renarde, Inc. v. Sims

312 N.J. Super. 195, 711 A.2d 410 (Ch. Div. 1998)
  • Opinion Date: February 19, 1998

EMPLOYER-EMPLOYEE; NON-COMPETITION; ASSIGNMENTS—Upon sale of a business, absent a provision to the contrary, a non-competition covenant in favor of the seller is assignable to the buyer and passes as an incident of the business sold. It is therefore enforceable by the buyer as successor in interest.

A hairdresser was bound by a non-competition agreement that barred the employee from working within a radius of nine miles from the employer’s principal place of business for a period of nine months following the termination. The original employer, a corporation, sold its hairdressing salon to a new corporation and the employee continued as a hairdresser with the new business. About four years later, the employee left the salon and opened a hairstyling business only three miles away. The successor employer sought an interlocutory injunction to bar its former employee from operating so close to the former place of employment. The employee’s chief argument in opposition to the issuance of injunctive relief was that the restrictive covenant was entered into with her employer’s predecessor. That argument was centered on the theory that a court will not compel specific performance of a personal services contract against an employee. The Court agreed that it would not compel an employee to continue working for a particular employer, but did not believe that this affected the right of one party to assign its rights or obligations to another. Although the employment contract was silent as to either party’s ability to assign its rights and obligations, this did not mean that it could not be assigned. Rather, as a general rule, contract rights and obligations may be freely assigned in the absence of some express contractual prohibition. After reviewing prior law, the Chancery Division concluded that upon the sale of a business, a restrictive covenant that is the asset of the seller is assignable without express words to that effect and passes as an incident of the business sold even though not specifically assigned. According to the Court, such a matter had been decided more than seventy years earlier.

The Chancery Division went on to analyze the reasonableness of the covenant and, following additional analysis, it found that the covenant was reasonable on its face and did not seek to stretch its bounds beyond that which is necessary to protect the employer’s legitimate business interests.