Understanding Material Breach and Restrictive Covenants in Employment Agreements: NY & NJ Perspectives
By Barry E. Janay, Esq.
An employer’s unilateral reduction in an employee’s pay is not merely a contractual technicality—it may amount to a material breach with dramatic consequences for the enforceability of restrictive covenants, like non-compete and non-solicitation clauses. This issue is particularly nuanced in New York and New Jersey, where courts scrutinize such breaches through well-established case law and principles.
New Jersey Law: The Three-Prong Test and Material Breach
In New Jersey, restrictive covenants are only enforceable if they:
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Protect a legitimate business interest,
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Do not impose undue hardship on employees,
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Do not harm the public interest.
This framework was established in the landmark case, Solari Industries, Inc. v. Malady, 55 N.J. 571, 264 A.2d 53 (1970) (Justia Full Text and Case Brief Summary).
Subsequent cases such as Coskey’s Television & Radio Sales and Service, Inc. v. Foti, 253 N.J. Super. 626 (App. Div. 1992) (Justia Full Text), further refined that overbroad or unreasonable covenants may be vacated, especially when enforcement causes significant hardship to employees.
In New Jersey, if an employer reduces promised pay or benefits in violation of an employment agreement, courts may find the underlying restrictive covenant unenforceable because the consideration supporting it (i.e., compensation for agreement to restrictions) has been negated.
New York Law: Reasonableness, Materiality, and Good Faith
New York courts take a similar view, but emphasize reasonableness and necessity, as detailed in BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 712 N.E.2d 1220 (1999) (Justia Full Text).
If an employer breaches the agreement—by failing to pay commissions, reducing salary, or terminating the employee without cause—the courts examine whether the restrictive covenants (non-compete, non-solicitation) remain enforceable. Cases such as R & G Brenner Income Tax Consultants v. Gilmartin, 233 A.D.3d 819 (2024) (Justia Slip Opinion), and Grassi & Co., CPAs, P.C. v. Janover Rubinroit, LLC, 82 A.D.3d 700 (2d Dep’t 2011) (CourtListener), demonstrate that material breaches can invalidate restrictive covenants if the mutuality of obligation ceases to exist or the employer’s conduct undermines good faith.
At-Will Employment Realities
While at-will employment gives employers in both states the right to prospectively alter terms (including pay), any changes must comply with valid contractual commitments. A material breach arises when the terms set forth in a written offer or agreement are disregarded without appropriate legal process or consent.
Why Each Case Requires Tailored Legal Guidance
Crucially, the enforceability of restrictive covenants and the legal effect of a material breach always depend on the unique facts of each case. Courts will consider:
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The language and structure of the contract,
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The circumstances of breach,
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The scope and reasonableness of any restrictions,
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The timing and manner of any compensation change,
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The presence or absence of good faith in employer conduct.
No online resource or AI-generated answer can guarantee an outcome, and there is no substitute for personalized advice from a qualified attorney. The Law Office of Barry E. Janay, P.C. is deeply committed to fighting for clients with integrity, commitment, insight, and a resolute focus on getting results, providing hands-on guidance tailored to your unique situation.
Practical Takeaways
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If an employer unilaterally reduces pay or breaches an agreement, the consideration for restrictive covenants may be void, and enforcement is likely to be refused by courts in both NY and NJ.
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Legitimate business interests, fairness to the employee, and public impact drive judicial decisions.
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Employers should document all compensation changes and contractual amendments.
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Employees facing questionable pay reductions or restrictive covenants should seek immediate legal counsel.
Barry E. Janay, Esq. JD/MBA
Principal and Founder at The Law Office of Barry E. Janay, P.C.
