ADP LLC v. Rafferty, No. 18-1796 (3d Cir. 2019)Annotate this Case
ADP sells technology products and services and imposes restrictive covenants on its sales employees. At hiring, all employees sign a Sales Representative Agreement (SRA) and a Non-Disclosure Agreement (NDA) that prohibit ADP employees from soliciting any ADP “clients, bona fide prospective clients or marketing partners of businesses of [ADP] with which the Employee was involved or exposed” for one year after termination. ADP employees who meet their sales targets are eligible to participate in a stock-option award program, only if they agree to an additional Restrictive Covenant Agreement (RCA), which prohibits employees, for one year following their termination, from soliciting any ADP clients to whom ADP “provides,” “has provided” or “reasonably expects” to provide business within the two-year period following the termination; for one year following their termination, RCA employees will not “participate in any manner with a Competing Business anywhere in the Territory where doing so will require [them] to [either] provide the same or substantially similar services to a Competing Business as those which [they] provided to ADP while employed,” or “use or disclose ADP’s Confidential Information or trade secrets.”
Former ADP employees, shortly after leaving ADP, began working for ADP's direct competitor. Each had signed the SRA and NDA and each accepted stock awards under the RCA. ADP sought enforcement of the SRA, NDA, and RCA. The Third Circuit held that the covenants are not unenforceable in their entirety because they serve a legitimate business interest, but they may place an undue hardship on employees because they are overbroad. The court remanded for consideration of whether and to what extent it is necessary to curtail their scope, the approach prescribed by the New Jersey Supreme Court.