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Klabin Fragrances, Inc. v. Hagelin & Company, Inc.

2005 WL 1502254 (N.J. Super. Ch. Div. 2005) (Unpublished)

EMPLOYER-EMPLOYEE; NON-COMPETITION—For a non-compete clause in an employment contract to be valid and enforceable, it must be reasonable.

A man entered into an employment contract with a candle company. It contained a restrictive covenant clause barring the man from soliciting any of his employer’s customers for three years after his employment was terminated. The man eventually left the company and went to work for a competitor of his former employer. Shortly after the man quit, his former employer sent him a letter to remind him of the restrictive covenant clause. Despite his duties under the clause, the man began soliciting some of his former employer’s customers. The former employer applied for and was granted temporary restraints against the man and his new employer, which barred both from soliciting any of the former employer’s clients. The man was also ordered to produce a list of companies that were solicited in violation of the restrictive covenant. The former employer then moved for preliminary restraint to enforce the contract. It argued that the restrictive covenant provision was enforceable because the man was given an opportunity to inquire about the clause and was advised to consult with an attorney before signing the contract. In response, the man, along with his new employer, contended that the provision should not be enforced because the man had been coerced into signing the agreement. They further argued that the man did not violate the restrictive covenant because his new employer already had a relationship with the solicited companies prior to the man’s employment.

The Court denied the former employer’s application for preliminary restraints for failing to meet its burden. It held that in order to be granted injunctive relief, the former employer was required to show: 1) that it would suffer irreparable harm if the relief were not granted; 2) a probability of success on the merits of the case; and 3) that it would suffer more hardship than its employee if the relief were not granted. With respect to the first factor, the Court held that the former employer would suffer irreparable harm by losing some of its customers. However, it found that the former employer failed to meet the second factor by not showing a probability of ultimate success on the merits. In reaching this conclusion, the Court questioned the validity of the restrictive covenant clause. It held that in order for the clause to be enforceable, it must be reasonable and satisfy the following three factors: 1) it must be necessary to protect the parties’ legitimate interests; 2) it must cause no undue hardship on the former employee; and 3) it must not impair the public interest. It ruled that the provision was unreasonable because it prevented the man and his new employer from soliciting customers with whom the new employer previously had relationships. It found that the three year time frame was too long and the worldwide exclusive was too broad. It also focused on the fact that the employer’s hostile work environment had forced the man to leave his employment with his former employer and as a result, the restrictive covenant could be characterized as an undue hardship on the man. Accordingly, the Court denied the former employer’s application for a preliminary injunction.

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