In ADP, LLC v. Lynch, 2017 U.S. App. LEXIS 2159 (3d Cir. 2017), the United States Courts of Appeals for the Third Circuit affirmed the partial enforcement of non-compete agreements against former employees, who agreed to the non-compete agreements online when accepting stock awards.
Jordan Lynch and John Halpin worked in sales at ADP for approximately six years. During the course of their employment, Mr. Lynch and Mr. Halpin accepted incentive stock awards on five occasions that were offered to select employees for their performance. The incentive stock awards were offered online, and required the employees to “select the check box” to indicate they “read all associated documents” before accepting the incentive stock awards. There was a 19-page PDF document next to the check box, which included, among other documents, the non-compete agreements at issue. The non-compete agreements stated, in relevant part, that “for a period of 12 months after the end of employment, the employee 1) would not join an ADP competitor and 2) would not solicit any business from any current or prospective ADP client.” Mr. Lynch and Mr. Halpin ultimately resigned from ADP and started to work for a competitor, Ultimate Software. Shortly thereafter, ADP brought a lawsuit against them and requested a preliminary injunction to enforce the non-compete agreements.
The District Court granted the preliminary injunction in part. Specifically, the Court enjoined Mr. Lynch and Mr. Halpin from soliciting current ADP clients for 12 months following their resignations; however, it restricted the solicitation of prospective ADP clients only to the extent the former employees gained knowledge of the prospective clients while employed by ADP and allowed Mr. Lynch and Mr. Halpin to continue to work for their new employer. The Third Circuit affirmed this ruling, finding that the issuance of a preliminary injunction under these circumstances was not an abuse of discretion.
Accordingly, this decision illustrates that restrictive covenants remain alive and well in the State of New Jersey. As such, companies should continue to protect their legitimate business interests through the use of restrictive covenants and individuals who sign restrictive covenants should be mindful of their post-employment obligations.
If you have any questions about non-compete agreements or restrictive covenants in the State of New Jersey, please contact the Law Office of Frank A. Custode, LLC.