This action was brought by an accounting firm seeking injunctive enforcement of a restrictive employment covenant against its former employee, and damages for the employee's alleged breach of that covenant. Thus, on this return date of the order to show cause, the issue of the validity of restrictive covenants between accountants, as yet unresolved in New Jersey, is placed squarely before this court.
In January 1978 defendant Edward M. Edelson, a certified public accountant of the State of New Jersey, entered the employ of plaintiff Mailman, Ross, Toyes & Shapiro, an established accounting firm in North Plainfield. Defendant alleges that at no time prior to his hiring did he have any discussions with plaintiff concerning a restrictive employment covenant; however, three days after commencing employment he was presented with a restrictive covenant agreement and directed to execute it as a condition of his continued employment. He did so.
During employment and for a period of two (2) years after termination, however that comes about, the undersigned employee shall not accept, solicit or offer accounting services from or to, or employment with any client of MAILMAN, ROSS, TOYES & SHAPIRO, unless MAILMAN, ROSS, TOYES & SHAPIRO consents in writing to permit such services.
The agreement further provides for compensatory and exemplary damages, and injunctive relief in the event of a breach.
Defendant resigned from his position with plaintiff in November 1981 and subsequently opened his own office, also in North Plainfield. Just prior to his departure from the firm defendant alleges that one of the partners made an unsolicited statement to him that he, the partner, would have no problem with defendant's providing accounting services for plaintiff's clients.
Defendant asserts that he did not, after leaving plaintiff's employ, solicit plaintiff's clients and, in fact, responded to unsolicited telephone inquiries from several of plaintiff's clients that he was bound by a restrictive covenant and therefore could not provide accounting services to the caller. Defendant did, however, accept employment from one of plaintiff's clients who had recently terminated his relationship with plaintiff, but only after learning of an alleged oral representation by another of plaintiff's partners to the former client, that plaintiff had consented to the new arrangement. Plaintiff now claims that Edelson violated the terms of the restrictive covenant by accepting this employment without plaintiff's written consent.
New Jersey case law is barren of any consideration of the enforceability of such restrictive employment covenants in the accounting profession. Decisions from other jurisdictions offer no clear direction.*fn1 However, the principles articulated in three
seminal New Jersey cases dealing with restrictive covenants in other fields provide the frame-work within which this covenant must be analyzed.
Under Solari Industries, Inc. v. Malady , 55 N.J. 571, 576 (1970), a covenant not to compete will be given effect "if it is reasonable in view of all the circumstances of the particular case." Solari further provides a three-prong test to determine reasonableness: (1) the covenant must be no more restrictive than is necessary to protect the legitimate business interests of the employer; (2) it must impose no undue hardship on the employee and (3) it must not be injurious to the public interest. In light of these criteria the court may reduce or impose temporal or territorial restrictions should the covenant on its face ...