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VTS Travel Enterprises, Inc. v. Spaulding

A-3048-03T3 (N.J. Super. App. Div. 2004) (Unpublished)

EMPLOYER-EMPLOYEE; NON-COMPETITION—A court will not enforce a restrictive covenant that is principally directed as lessening competition or that imposes undue hardship by preventing employees from using general knowledge gained during employment.

A computer company contracted with a travel agency to provide a full service on-site branch travel department at one of the company’s offices. The contract required the agency to maintain two employees at the office. When the contract expired, the computer company did not renew. Instead, it entered into a similar, exclusive contract with another travel agency. The two employees that had originally worked for the first agency stayed at the office and began working for the new agency. The first travel agency then sued the employees for allegedly breaching the terms of their restrictive covenant agreements. The employees contended that the restrictive covenants were unenforceable. The lower court agreed, holding that the covenant did not advance the first agency’s legitimate business interest and imposed an undue hardship upon the employees.

A restrictive covenant must protect the legitimate interests of the employer, must impose no undue hardship on the employee, and must not impair the public interest. On appeal, the Appellate Division noted that the employer conceded that the employees did not steal trade secrets or do anything inappropriate. The employer’s only contention was that its former employees were working for another travel agency in the same office that they had worked in while working for it. The Court pointed out that because the contract between the computer company and the new travel agency was exclusive, the employee’s current employment did not place them in direct competition with their former employer. This was not a situation where the employees sought employment with a competing travel agency, thus placing themselves in a position to use their former employee’s customer lists. The computer company controlled that information, not the successor travel agency. Furthermore, there was no showing that the employees received any special training that could be unfairly used by them in their subsequent employment to the first agency’s detriment. A court will not enforce a restrictive covenant that is principally directed at lessening competition or that imposes undue hardship by preventing employees from using general knowledge gained during employment. Therefore, the Appellate Division affirmed the lower court’s decision to dismiss the employer’s complaint.


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