May 15, 2019
appeal from the Superior Court of New Jersey, Chancery
Division, Essex County, Docket Nos. C-000264-15, C-000023-16,
C-000143-16, C-000117-16, C-000120-16, and C-000118-16.
Timothy J. Lowe (McDonald Hopkins, PLC) of the Michigan bar,
admitted pro hac vice, argued the cause for
appellant/cross-respondent in A-4664-16 and appellants
(Genova Burns, LLC, James Boutrous (McDonald Hopkins, PLC) of
the Michigan bar, admitted pro hac vice, and Timothy J. Lowe,
attorneys; Harris S. Freier, James Boutrous, and Timothy J.
Lowe, on the briefs in A-4664-16, A-0692-17, A-2990-17, and
A-4407-17; Harris S. Freier and Timothy J. Lowe, on the
briefs in A-0693-17; Harris S. Freier, on the briefs in
H. Schmidt, Jr., argued the cause for respondent/
cross-appellant in A-4664-16 and respondents (Lindabury,
McCormick, Estabrook & Cooper, PC, attorneys; John H.
Schmidt, Jr., and Stacey K. Boretz, on the briefs).
Judges Koblitz, Currier, and Mayer.
W. CURRIER, J.A.D.
these consolidated appeals, we consider the enforceability of
the restrictive covenant agreements (RCAs) executed by the
six defendants during their employment with plaintiff ADP,
LLC. Each defendant was a top-performing sales
representative. To award and incentivize their success, ADP
invited defendants to participate in a stock award incentive
program conditioned on their acceptance and execution of an
RCA. Each defendant assented to the RCA and accepted the
stock awards for several years.
included non-solicitation and non-compete provisions that
restricted an employee from soliciting ADP's clients and
competing with ADP upon leaving the company. The defendants
left ADP at varying times and each accepted employment with
the same direct competitor. Consequently, litigation ensued
in which ADP sought to enforce its RCAs.
courts' treatment of the various lawsuits has been
inconsistent. We strive to bring some clarity and uniformity
to the consideration of an RCA, and to provide the parties
guidance for the drafting of such covenants.
review of the RCAs at issue here, we are satisfied that
because ADP presented evidence of a legitimate business
interest to support the imposition of the covenant's
restrictions, the covenant is not entirely unenforceable.
However, its non-solicitation and non-compete provisions are
overly broad and require blue-penciling to ensure they
reasonably guard ADP's interest in protecting its
customer relationships without imposing an undue hardship on
its former employees.
reasons that follow, ADP may only prohibit its employees,
upon separation from the company, from soliciting any of
ADP's actual clients with whom the former
employee was directly involved or who the employee knows to
be ADP's client. As to the solicitation of
prospective clients, it is unreasonable and onerous
to restrict defendants from soliciting clients unknown to
defendants while at ADP. Therefore, when working for a
competitor, a former employee is only prohibited from
soliciting a prospective ADP client if the employee gained
knowledge of the potential client while at ADP and directly
or indirectly, solicits that client after leaving.
considering the non-compete provision, we find it reasonable
for ADP to restrict its former employees, for a reasonable
time, from providing services to a competing business in the
same geographical territory in which the employee operated
while at ADP.
therefore, reverse the trial court orders that found the RCAs
to be unenforceable. We also reverse the trial court orders
that fell short of declaring the RCAs unenforceable, but
placed greater restrictions on the non-solicitation and
non-compete provisions than the standards set
here. Because each defendant breached the RCAs
to some extent, we remand the matters to the trial court to
determine the appropriate remedy for the breach and to
consider ADP's application for counsel
human capital management firm, provides a range of business
outsourcing and software services pertaining to human
resources, payroll, taxes, and benefits administration to
over 620, 000 companies worldwide. It contends that to
protect its confidential business interests, it uses a
two-tiered system of restrictive covenants.
employee is initially hired by ADP, he or she is required to
sign either a sales representative agreement (SRA), a
non-disclosure agreement (NDA), or both. Those agreements
contain general non-compete and non-solicitation provisions
that are narrowly tailored in scope and geographical region,
and prevent employees from soliciting any clients the
employee had contact with at ADP for twelve months after
terminating their employment.
top employees who meet or exceed their sales targets, ADP
offers an annual stock option incentive. The incentive is
conditioned upon the acceptance of a secondary RCA. The RCAs
tied to the stock incentives are "click-wrap"
agreements, which require the employee to check a box on a
computer screen to indicate he or she reviewed the RCA and
agreed to its terms, before accepting the stock
to 2013, the RCAs for the stock options were narrowly
tailored and largely tracked the initial SRAs and NDAs that
employees signed upon their hire. The pre-2013 RCAs only
precluded an employee from soliciting ADP's clients with
whom he or she had contact, and limited the non-compete
provisions to the geographical territory the employee worked
in while at ADP.
post-2013 RCAs, however, were more restrictive and prevented
employees from soliciting any actual or prospective
ADP client, regardless of the employee's geographical
location or personal contact with the client, for a
twelve-month period after termination. Any violation of the
RCA tolled the time period that the covenants remained in
effect. In addition, the later RCAs permitted ADP to recoup
all reasonable attorney's fees and costs incurred in
in the stock award program was voluntary; ADP's top
employees who chose not to participate in the program were
not required to accept the RCAs. The 2014 RCA is the crux of
that backdrop, we turn to a discussion of each defendant, his
employment history, and the trial court proceedings.
2007, defendant Erik Kusins was hired by ADP and signed a
SRA, which contained non-compete and non-solicitation
provisions. Those provisions prohibited Kusins from
soliciting ADP's clients that he had contact with at ADP,
and prevented him from working in a similar role for a
competitor in "any territory" that he managed or
was assigned to while at ADP.
was initially hired as a client district manager. In that
role, he managed ADP's accounts for clients with 100 to
1000 employees in "towns and areas throughout Eastern
Massachusetts" for approximately five and a half years.
Thereafter, Kusins accepted a position in ADP's business
process outsourcing department, where he worked for
approximately one year. During that time, he was responsible
for attracting prospective clients with 150 to 1000 employees
in Eastern Massachusetts.
2013, Kusins was promoted to sales executive, where he
managed employees responsible for attracting new clients for
ADP in the Eastern Massachusetts region. Kusins was promoted
again in 2015 and assigned to ADP's national accounts
division, where he sold ADP products and services to
employers with between 1000 and 5000 employees in
Massachusetts, New Hampshire, and Maine. He had a list of
seventy-five clients and prospects, and access to pricing
his employment with ADP, Kusins met or exceeded his yearly
sales targets six times between 2008 and 2014. In those six
years, he accepted the incentive stock options and the
required RCAs by clicking an online agreement. The RCAs
executed from 2008 through 2012 were similar to the SRA, and
narrowly tailored in scope and geographic territory. As
stated, the RCAs in 2013 and 2014 were much broader.
disputed 2014 RCA, assented to by each defendant, states, in
3. Non-Competition. I agree that during my
employment and for a period of twelve (12) months from the
voluntary or involuntary termination of my employment for any
reason and with or without cause, I will not, directly or
indirectly, own, manage, operate, join, control, be employed
by or with, or participate in any manner with a Competing
Business anywhere in the Territory where doing so will
require me to (i) provide the same or substantially similar
services to a Competing Business as those which I provided to
ADP while employed. . . .
4. Non-Solicitation of and Non-Interference with
Clients, Business Partners, and Vendors.
a. Clients: I agree that during my employment and
for a period of twelve (12) months following the voluntary or
involuntary termination of my employment for any reason and
with or without cause, I will not, either on my own behalf or
for any Competing Business, directly or indirectly, solicit,
divert, appropriate, or accept any business from, or attempt
to solicit, divert, appropriate, or accept any business from
any Client for the purposes of providing products or services
that are the same as or substantially similar to those
provided in the Business of ADP, for any Client: (i) whom ADP
provides products or services in connection with the Business
of ADP; (ii) whom ADP has provided products or services in
connection with the Business of ADP and with whom ADP
reasonably expects business within the two (2) year period
following my termination of employment from ADP; (iii) whom
ADP has actively solicited in connection with the Business of
ADP within the two (2) year period prior to my termination of
employment from ADP; or (iv) about whom I have any trade
secret information. I also agree that I will not wrongfully
induce or encourage or attempt to wrongfully induce or
encourage any Clients to cease doing business with ADP or
materially alter their business relationship with ADP.
. . . .
5. Non-Solicitation of Employees. I agree
that during my employment with ADP and for a period of twelve
(12) months following the voluntary or involuntary
termination of my employment for any reason and with or
without cause, I will not, directly or indirectly, hire,
solicit, recruit, or encourage to leave ADP, any current
employees of ADP or hire, solicit, recruit, or contact with
employees who terminate their employment with ADP within
twelve (12) months following my termination date.
6. Non-Disclosure and Non-Use of Confidential
Information and Trade Secrets. During my employment . .
. and after the voluntary or involuntary termination of my
employment for any reason and with or without cause, I will
not disclose, use, reproduce, distribute, or otherwise
disseminate ADP's Confidential Information. . . .
. . . .
11. Relief, Remedies, and Enforcement. I
acknowledge that ADP is engaged in a highly competitive
business, and the covenants and restrictions contained in
this Agreement, including the geographic and temporal
restrictions, are reasonably designed to protect ADP's
legitimate business interests, including ADP['s] goodwill
and client relations, Confidential Information and trade
secrets . . . . I agree that if ADP substantially prevails in
any litigation arising out of or relating to this Agreement .
. . ADP shall be entitled to recovery of its reasonable
attorneys' fees and associated costs. . . .
12. Tolling. The restricted time periods in
paragraphs three (3) through six (6) above shall be tolled
during any time period that I am in violation of such
covenants, as determined by a court of competent
jurisdiction, so that ADP may realize the full benefit of its
bargain. This tolling shall include any time period during
which litigation is pending, but during which I have
continued to violate such protective covenants and a court
has declined to enjoin such conduct or I have failed to
comply with any such injunction.
agreement also defined certain key terms used above as
c. "Clients" means any
individual, corporation, limited liability company,
partnership, joint venture, association, or other entity,
regardless of form, or government entity for whom ADP
provided or provides products or services in connection with
the Business of ADP or whom ADP has actively solicited in
connection with the Business of ADP.
d. "Competing Business" means any
individual (including me), corporation, limited liability
company, partnership, joint venture, association, or other
entity, regardless of form, that is engaged in any business
or enterprise that is the same as, or substantially the same
as, the Business of ADP for that part of the business in
which I have worked or to which I have been exposed during my
employment with ADP (regardless of whether I worked only for
a particular segment of that part of the business in which I
worked - for example, business segments based on the number
of employees a Client has or a particular class of business
using an ADP product or service).
e. "Confidential Information"
means information . . . that is created, compiled, or
gathered by ADP or its agents and is related to the Business
of ADP. . . . Confidential Information includes but is not
limited to information about: ADP's operations, products,
and services; research and development of ADP products and
services; . . . names and other listings of current or
prospective Clients, Business Partners, and Vendors
(including contact information that may be compiled in
computer databases that are not owned or controlled by ADP .
. .; proposals made to current or prospective Clients,
Business Partners, and Vendors or other information contained
in offers or proposals to such Clients, Business Partners,
and Vendors; the terms of any arrangements or agreements with
Clients, Business Partners and Vendors, including the amounts
paid for such services or how pricing was developed by ADP,
the implementation of Client-specific projects, the identity
of Business Partners and Vendors, and Business Partner and
Vendor pricing information, the composition or description of
future services that are or may be provided by ADP; ADP's
financial, marketing, and sales information; and technical
expertise and know-how developed by ADP, including the unique
manner in which ADP conducts its business. . . .
. . . .
g. "Material Business Contact" means
contact that is intended to establish or strengthen a
business relationship for ADP.
h. "Territory" means the geographic area
where I worked, represented ADP, or had Material Business
Contact with ADP's Clients in the two (2) year period
preceding the termination of my employment with ADP.
the RCA explicitly stated that it supplemented all existing
agreements, "include[ing] the same or similar
covenants," so those covenants would "provide ADP
with the greatest protection enforceable under applicable
September 2015, Kusins resigned from ADP. He met with his
direct supervisor, Anne Marie McMurray, to discuss the
clients he had been working with and, later, sent a series of
emails to McMurray, detailing the clients with which he was
involved. Kusins also turned over all notes and documents
containing ADP's confidential information, and his
company-issued laptop and iPad. Two days later, ADP sent
Kusins a letter reminding him of his obligations under the
than two weeks after his resignation, Kusins began working as
a sales representative for Ultimate Software Group (USG). At
USG, Kusins sold human resources software to companies with
over 2500 employees in Massachusetts, New Hampshire, Maine,
Connecticut, New York, New Jersey, and Pennsylvania. He had
worked in three of those same territories while at ADP.
alleged that Kusins violated the terms of the SRA and RCAs by
soliciting ADP's clients in his new employment. Its
complaint asserted claims for breach of contract, breach of
the duty of loyalty, misappropriation of trade secrets, and
unfair competition. Kusins's answer and counterclaims
contended that the 2013 and 2014 RCAs were overly broad and
the completion of discovery, ADP and Kusins filed competing
motions for summary judgment. Finding contested issues of
fact, the trial judge ordered a plenary hearing. During the
hearing, McMurray and Kusins testified about the RCAs at
issue and the nature of Kusins's employment with ADP.
testified that she led the global enterprise solution
division in the New England region for national accounts at
ADP. In that role, she managed a team of associates,
discussing the incentive program, McMurray explained that the
employees who were invited to receive incentive stock options
were "top performing associates," who had "the
greatest understanding about [ADP's] products, about how
[ADP is] unique in the market," about what made ADP
"more competitive," and who had "strong
relationships with [ADP's] clients." McMurray stated
that a strong relationship with a client led to greater
sales. She believed the second-tier RCAs were broader because
the employees receiving the incentive stock options
cultivated "insight[, ] . . . information, and
relationships" that could be "very damaging from a
brand perspective and a loss of accounts, and
alleged that Kusins breached the SRA and RCAs by: (1) asking
a coworker at USG to solicit business from an ADP client that
Kusins had worked with at ADP; (2) advising his sales
representatives at USG to "attack" ADP's
clients; (3) preparing a business plan at USG, which listed
four of ADP's prospective clients that he had been in
contact with while at ADP; (4) soliciting business from
several clients he dealt with at ADP; and (6) disclosing
ADP's confidential information to salespeople at USG.
further attested to the harm Kusins had caused ADP,
specifically with regard to his solicitation of a particular
ADP client. She explained that ADP was engaged in contract
renewal with the client and had to use "a significant
amount of resources" to keep the business. Kusins's
conduct in soliciting ADP's client had damaged ADP's
relationship with the client, diminished ADP's
reputation, and made it more difficult to "sell new
products and services" to its former client. ADP had
also lost revenue from its reduced business with the client.
hearing testimony, and considering the proofs submitted on
the summary judgment record, the trial judge concluded in a
written opinion that Kusins had breached the terms of the
initial SRA by soliciting both prospective and actual clients
of ADP after leaving to work for USG.
the judge equitably tolled the restrictive covenants in the
SRA and, for a period of twelve months from the date of the
order, enjoined Kusins from soliciting any actual or
prospective ADP client that he worked with while employed at
ADP and from soliciting or recruiting any ADP employee. The
judge also prohibited Kusins from ever using or disclosing
ADP's confidential, proprietary or trade secret business
considering the RCAs, however, the judge came to a different
conclusion. He determined the RCAs to be overbroad,
"anti-competitive and unenforceable," as they were
"designed to stifle competition rather than protect
[ADP's] legitimate business interest." The judge
found that ADP offered "no legitimate business reason
for imposing these covenants only on their best sales
June 29, 2017 order, the judge also denied ADP's claims
for monetary damages, counsel fees, and contractual tolling,
because those provisions were only contained in the
commencing employment with ADP in 2009, defendant Ryan Hopper
signed an NDA. The NDA contained general provisions
prohibiting Hopper from using or disclosing ADP's
confidential information, trade secrets, or proprietary
information, except as required to fulfil his duties as an
employee. The NDA did not contain any non-compete or
initially worked in the small business sales division at ADP.
In that role, he sold payroll products and services to
employers with one to forty-nine employees in the
Minneapolis, Minnesota area. After approximately two years in
that position, Hopper was promoted to associate district
manager, and assigned to the downtown Minneapolis and North
Minneapolis sales territory. In that position, Hooper had his
"own client list and [his] own prospect list." Over
the next six years, Hopper received several promotions,
culminating in his role as a sales executive in the
Minneapolis and St. Paul territories.
met his sales targets and accepted ADP's stock award
incentives from 2012 to 2014, requiring him to execute the
"click-wrap" RCAs in each of those years. Although
the 2012 RCA was similar to the NDA Hopper signed upon his
hiring, it also included provisions that prevented him, for a
period of twelve months after termination, from soliciting
any of ADP's clients he had worked with at the company or
hiring or soliciting ADP's employees. The more expansive
2013 and 2014 RCAs prevented Hopper from soliciting
any of ADP's clients, regardless of his prior
interaction with the client, and contained tolling and
attorney's fees provisions.
Hopper resigned from ADP in 2015, he began employment at USG,
where he sold human resources software to employers with 200
to 500 employees in the sales territory of North Dakota,
South Dakota, Iowa, Nebraska, Wyoming, Montana, and Idaho. He
did not sell any USG products in the territories where he had
worked while at ADP.
discovery, the parties filed competing summary judgment
motions. ADP argued that Hopper violated the terms of the NDA
and RCAs by soliciting four of ADP's clients and an ADP
employee. ADP contended the RCA was enforceable because it
served to protect its legitimate business interests.
deposition testimony of Sean Burns, an ADP division
vice-president, supported ADP's motion. Burns
discussed ADP's "price book," an internal
electronic system that contains ADP's "[p]ricing
services" and other confidential information. He
explained that ADP's salespeople in small business sales
would use the price book to generate quotes and proposals for
prospective clients. The salespeople were instructed to
inform their "potential prospects" that the pricing
information was "confidential and proprietary" and
should not be shared with third parties. When ...