1. Non-competition: prevents a previous employee from engaging in an activity that may, or does, compete with their previous employer;
2. Non-solicitation: prohibits the previous employee from soliciting customers and/or prospects as well as the employer’s other employees; and
3. Nondisclosure: limits an employee’s unauthorized use of confidential company, proprietary, or trade secret information.

It is important to note that the law tends to favor the free mobility of employment as well as open and fair competition.  Accordingly, many courts will disfavor such restrictive agreements.   In order to increase the likelihood that any such agreement, if challenged, will be upheld, there are several important principles to consider.

In general, New Jersey courts will enforce a non-compete agreement if the following four conditions are satisfied:  (1) the employer has a legitimate interest in being protected from the competition of the employee; (2) the agreement is reasonable in light of all the circumstances; (3) the agreement is reasonably limited in time, scope, and geography; and (4) enforcement of the agreement will not prove harmful or unduly burdensome to the public.

Finally, because such agreements are often challenged through litigation, it is crucial that any non-compete agreement also contain provisions that govern: (1) which state’s laws will be applied in interpreting the agreement (“choice of law” provision); (2) where the parties will litigate or arbitrate any breach of the agreement (“forum selection” provision); and (3) which party will be responsible for attorney fees, costs and expenses (“attorney fee” provision).

If you or someone you know requires legal advice or representation concerning non-compete agreements, please contact the office of Sedita, Campisano & Campisano for a free consultation.

The following is a list of factors that courts routinely consider in determining whether or not to pierce the corporate veil of a defendant corporation and attach personal liability to its shareholders:

1. Whether the business is a closely held corporation:There has never been a reported decision where a publicly traded corporation has been pierced.  In a closely held corporation, shareholders tend to manage the business (although this alone is not sufficient).
2. Whether the plaintiff is an involuntary creditor:Courts are less likely to pierce for the sake of voluntary creditors because they should be aware of the risks involved.
3. Whether the defendant is a corporate shareholder:In the parent/subsidiary context, courts have required a showing that the parent dominated the subsidiary such that they acted as a single economic entity.
4. Whether or not corporate formalities were followed:This can include holding shareholders’ and directors’ meetings, the issuance of stock, election of directors and officers, passing resolutions authorizing payments, and keeping corporate minutes.  A lack of formality suggests shareholders systematically disregard corporate obligations.
5. Whether insiders commingled business assets/affairs with individual assets/affairs:For example, the use of corporate bank account to pay personal expenses allows an inference that corporate participants disregarded creditor interests. Mixing assets, failing to observe formalities, having officers who do not identify the capacity  in which they are acting, and using the same trade name or stationery are common indiscretions used to justify enterprise liability.
6. Whether the insiders adequately capitalized the business:If a corporation is formed or operated without adequate capital to meet expected business obligations (though this alone is usually not sufficient to justify piercing); purposeful insolvency resulting from shareholder’s undisclosed siphoning of corporate assets can justify piercing;
7. Whether the defendant actively participated in business:Shareholders who are not active in the business and have not acted to disadvantage creditors are less likely to be personally liable than those whose actions resulted in depletion of assets;
8. Whether there is evidence that insiders deceived creditors:Perhaps the most critical factor is the presence of misrepresentation. Studies have shown that in piercing cases, courts almost always pierced when there was a finding of misrepresentation.  Therefore, if a creditor is deceived into believing that a corporation is solvent or that the creditor is otherwise protected, piercing is a high risk.

While courts may consider some or all of these factors, each case presents unique issues and questions which may require legal representation.  If you or someone you know has a question regarding this article or the issues it discusses, please feel free to contact one of the attorneys at Sedita, Campisano & Campisano LLC.