ADP, LLC VS. ERIK KUSINS ADP, LLC VS. RYAN HOPPER ADP, LLC VS. ANTHONY M. KARAMITAS ADP, LLC VS. NICK LENOBLE ADP, LLC VS. MICHAEL DEMARCO ADP, LLC VS. DANIEL HOBAICA (C-000264, C-000023-16, C-000143-16, C-000117-16, C-000120-16, AND C-000118-16, ESSEX COUNTY AND STATEWIDE) (CONSOLIDATED) ( 2019 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NOS. A-4664-16T1
A-0692-17T3
A-0693-17T3
A-2990-17T4
A-4407-17T4
A-4527-17T4
ADP, LLC,
Plaintiff-Appellant/ APPROVED FOR PUBLICATION
Cross-Respondent,
July 26, 2019
v. APPELLATE DIVISION
ERIK KUSINS,
Defendant-Respondent/
Cross-Appellant.
ADP, LLC,
Plaintiff-Appellant,
v.
RYAN HOPPER,
Defendant-Respondent.
ADP, LLC,
Plaintiff-Appellant,
v.
ANTHONY M. KARAMITAS,
Defendant-Respondent.
ADP, LLC,
Plaintiff-Appellant,
v.
NICK LENOBLE,
Defendant-Respondent.
ADP, LLC,
Plaintiff-Appellant,
v.
MICHAEL DEMARCO,
Defendant-Respondent.
ADP, LLC,
Plaintiff-Appellant,
v.
DANIEL HOBAICA,
Defendant-Respondent.
A-4664-16T1
2
Argued May 15, 2019 – Decided July 26, 2019
Before Judges Koblitz, Currier, and Mayer.
On 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 A-4527-17).
John 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).
The opinion of the court was delivered by
CURRIER, J.A.D.
In 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
A-4664-16T1
3
conditioned on their acceptance and execution of an RCA. Each defendant
assented to the RCA and accepted the stock awards for several years.
The RCA 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.
The courts'1 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.
In our 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-penciling2 to ensure they reasonably guard
1
ADP has pursued litigation in both the New Jersey state courts and several
federal courts.
2
The term "blue pencil[ing]" refers to a court's modification or tailoring of a
restrictive covenant. See Cmty. Hosp. Grp., Inc. v. More, 183 N.J. 36, 50 n.3
(2005).
A-4664-16T1
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ADP's interest in protecting its customer relationships without imposing an
undue hardship on its former employees.
For the 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 prospectiv e
ADP client if the employee gained knowledge of the potential client while at
ADP and directly or indirectly, solicits that client after leaving.
In 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.
We, therefore, reverse the trial court orders that found the RCAs to be
unenforceable.3 We also reverse the trial court orders that fell short of
3
ADP, LLC v. Hobaica, No. C-0118-16 (Law Div. 2018); ADP, LLC v.
DeMarco, No. C-0120-16 (Law Div. 2018); ADP, LLC v. Kusins, No. C-0264-
15 (Law Div. 2017).
A-4664-16T1
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declaring the RCAs unenforceable, but placed greater restrictions on the non -
solicitation and non-compete provisions than the standards set here. 4 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 fees. 5
I.
ADP, a 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.
When an 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
4
ADP, LLC v. LeNoble, No. C-0117-16 (Law Div. 2018); ADP, LLC v.
Karamitas, No. C-0143-16 (Law Div. 2017); ADP, LLC v. Hopper, No. C-
0023-16 (Law Div. 2017).
5
For consistency, the remanded cases should be assigned to the same judge.
A-4664-16T1
6
region, and prevent employees from soliciting any clients the employee had
contact with at ADP for twelve months after terminating their employment.6
For its 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 incentive. 7
Prior 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.
6
The initial NDA in Hopper did not contain any non-solicitation or non-
compete provisions.
7
A clickwrap agreement requires a computer user to affirmatively manifest
assent to the terms of a contract. See Specht v. Netscape Commc'ns Corp., 306
F.3d 17, 22 n.4 (2d Cir. 2002) (explaining clickwrap "presents the user with a
message on his or her computer screen, requiring that the user manifest his or
her assent to the terms of the . . . agreement by clicking on an icon") (quoting
Specht v. Netscape Commc'ns Corp., 150 F. Supp. 2d 585, 593-94 (S.D.N.Y.
2001)). If defendants did not affirmatively manifest assent to the terms by
taking the required action, they could not proceed and obtain the offered stock
award. Defendants have not disputed the validity of the clickwrap agreements.
A-4664-16T1
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The 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
their enforcement.
Participation 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 this dispute.
Against that backdrop, we turn to a discussion of each defendant, his
employment history, and the trial court proceedings.
A.
In May 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.
Kusins 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
A-4664-16T1
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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.
In 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
information.
During 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.
The disputed 2014 RCA, assented to by each defendant, states, in relevant
part:
A-4664-16T1
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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.
A-4664-16T1
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....
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
A-4664-16T1
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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.
The agreement also defined certain key terms used above as follows:
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 . . . ;
A-4664-16T1
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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.
Lastly, 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 law."
In 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
A-4664-16T1
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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 RCAs.
Less 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.
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 unenforceable.8
Following 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.
8
The suits instituted by ADP against each defendant contain similar
allegations and causes of action. The defenses and counterclaims are also
substantially similar.
A-4664-16T1
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McMurray 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, including Kusins.
In 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 referrals."
ADP 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.
A-4664-16T1
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McMurray 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.
After hearing testimony, and considering the proofs submitted on the
summary judgment record, the trial judge9 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.
Therefore, 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 information.
9
Two different trial judges handled these six cases. One judge considered and
ruled in Kusins, DeMarco, and Hobaica. A second judge issued decisions in
Hopper, Karamitas, and LeNoble.
A-4664-16T1
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In 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 people."
In its 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 unenforceable RCAs.
B.
Upon 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 non-solicitation provisions.
Hopper 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 approxi mately 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
A-4664-16T1
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the next six years, Hopper received several promotions, culminating in his role
as a sales executive in the Minneapolis and St. Paul territories.
Hopper 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.
After 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.
Following 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.
A-4664-16T1
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The deposition testimony of Sean Burns, an ADP division vice-president,
supported ADP's motion.10 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 discussing information that Hopper possessed about markets for
potential employers with over fifty employees, Burns stated:
Ryan worked hand in hand with [ADP's] major
accounts and [ADP's] market team, and as I said
earlier, he was my best associate and my best team in
partnering with them. So I think it's fair to make an
assumption that he had a pretty good knowledge of the
market because he passed [major accounts more than a
hundred] referrals.
Burns asserted Hopper breached the non-solicitation and non-compete
provisions by "talking to ADP clients. . . . [in] his new territory," and
potentially "soliciting business from ADP clients."
Burns further testified that the confidential information ADP sought to
protect included the information obtained by its employees during ADP's
10
Hopper had "directly" and "indirectly" reported to Burns for five years
while at ADP.
A-4664-16T1
19
training and leadership development programs. He stated that the information
imparted to Hopper would be useful if working for a direct competitor. Burns
explained:
[ADP] develop[s] young, immature salespeople who
don't have any experience in the business or
experience selling or experience even working for a
large organization. And . . . business maturity, sales
development, go-to-market strategies, selling skills,
leadership programs, . . . are all things that attract
people to [ADP] and they take with them when they
leave, whether it's in paper copy or not.
On June 30, 2017, the trial judge delivered an oral opinion granting each
party's motion for summary judgment in part. The judge found the RCA was
an enforceable "click-wrap" agreement that Hopper assented to online, but
rejected Hopper's argument that the RCA was "void ab initio" based on ADP's
breach of the covenant of good faith and fair dealing. Summary judgment was
entered in favor of ADP on those two issues.
However, with regard to the enforceability of the non-solicitation
provisions in the RCAs, the judge found: (1) the prohibition on soliciting
prospective clients was overly broad; (2) the prohibition on soliciting ADP
clients in general was overly broad; and (3) both non-solicitation provisions
were unenforceable as written. Therefore, the judge blue-penciled a
geographic restriction into the non-solicitation provisions of the RCAs,
limiting their applicability to actual clients in Hopper's geographic territory
A-4664-16T1
20
that he had worked in while at ADP, and for prospective clients, the territory
he was "familiar with" while at ADP.
The judge then turned to Hopper's alleged breaches of the non-
solicitation clause as blue-penciled. Because Hopper had solicited clients
located outside of the territory he worked in while at ADP, the judge found he
had not breached the terms of the blue-penciled RCAs. Although the judge
found Hopper had breached the terms of the RCA in soliciting an ADP
employee, he described it as a "minimal violation." He denied ADP's claims
regarding: (1) inevitable disclosure of ADP's protected information; (2)
breach of the duty of loyalty; and (3) unfair competition, finding insufficient
proofs to sustain the claims.
The judge also denied ADP's request to toll the one-year period
contained in the RCAs, finding that "[ADP] received the benefit of its bargain
as to all of [the] restrictive covenants." The judge declined ADP's request for
attorney's fees since Hopper had only committed one "insubstantial" violation.
An August 30, 2017 order memorialized the court's rulings.
C.
In May 2010, ADP hired defendant Anthony Karamitas as a sales trainee
in the major account sales division. Karamitas signed an NDA that prevented
him, for a period of twelve months after terminating his employment, from
A-4664-16T1
21
soliciting ADP's actual or prospective clients he had contact with while
working there, and disclosing ADP's confidential information or trade secrets.
After several months, Karamitas was promoted to major accounts district
manager. In that role, he sold ADP's human resources software to employers
with fifty to ninety-nine employees in certain areas of Georgia. Two years
later, Karamitas was promoted to comprehensive services district manager in
the major accounts division, where he sold ADP's services to employers with
50 to 149 employees. Karamitas had access to approximately 2000 ADP
customer accounts.
Karamitas met his sales targets and accepted stock option incentives
from 2011 to 2014. Each time he accepted the stock options, he also was
required to assent to the "click-wrap" RCAs. Those RCAs were identical to
those at issue in Kusins and Hopper.
After resigning from ADP in 2015, Karamitas worked in a position that
was not similar to his prior employment. However, six months later,
Karamitas joined USG as a strategic development manager, selling products
and services to companies in Georgia with 200 to 500 employees. Karamitas
testified that the products he sold for USG were similar to those he sold at
ADP. He further conceded that he did not go through any type of training period
at USG because he "knew the industry well."
A-4664-16T1
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Following Karamitas's resignation from ADP, the company sent him a
letter reminding him of his obligations under the NDA and RCAs, and
requesting information about his employment with USG. Through counsel,
Karamitas responded to ADP "disavowing any obligation on his part to comply
with the restrictive covenants."
ADP filed a complaint and an order to show cause, requesting a
preliminary injunction to enjoin Karamitas from violating the NDA and RCAs,
pending disposition of the litigation. In opposition, Karamitas submitted a
certification conceding that he had unsuccessfully solicited at least one ADP
client while at USG. The judge granted ADP's request for temporary restraints
and enjoined Karamitas, during the pending litigation, from: (1) soliciting any
actual or prospective ADP client he had contact with while employed by ADP;
(2) using or disclosing any of ADP's confidential or proprietary information at
any time; and (3) interfering in any way with any contract or client relationship
of ADP he knew about through his prior employment with the company.
Following the completion of discovery, the parties filed cross-motions
for summary judgment. ADP contended that Karamitas breached the terms of
the NDA and RCAs by soliciting its actual and prospective clients, competing
in the same market as ADP while employed by USG, and divulging ADP's
confidential and proprietary pricing information.
A-4664-16T1
23
In support of its motion, ADP offered the deposition testimony of Denise
Biehl. She stated she and Karamitas had worked collaboratively to sell business
process outsourcing services. Biehl explained ADP offered "unique" training to its
employees, where they learned how to sell "the ADP Way." She explained ADP
was recognized in the industry for its training and that Karamitas would have
received the same "unique" training.
After Karamitas became employed at USG, he began to solicit several of
ADP's clients, which Biehl explained had a "direct impact on the market that [she]
s[old] to." She said Karamitas had successfully poached ADP's business
[b]ecause of his experience selling products that are
similar to the ones he's selling now, because he has
knowledge of how [ADP's] service model works, [how
ADP's] implementation model works, and not just
around technology, but [ADP's] comprehensive shared
service models.
Biehl stated she learned from ADP's clients that Karamitas was soliciting
them; she also testified that Karamitas was soliciting numerous prospective clients.
Moreover, ADP's clients and its sales associates informed Biehl that Karamitas had
discussed confidential information with them, including: ADP's "fire protection,"
its HR "vulnerabilities," ADP's "ability to track certain data points," and ADP's
"service model." She had heard that Karamitas told prospective clients that ADP's
"HR system would not be able to track . . . data . . . in the way [the clients] would
like to do it."
A-4664-16T1
24
The judge found that, although the RCAs were enforceable "click -wrap"
agreements that Karamitas assented to when he accepted his stock option
incentives, the non-solicitation provisions in the 2013 and 2014 RCAs
prohibiting the solicitation of any actual or prospective ADP client were overly
broad and unenforceable. The judge found the non-solicitation provisions in
the initial NDA and the 2011 and 2012 RCAs were reasonable because those
provisions only prohibited Karamitas from soliciting ADP clients in the
Georgia region that he had worked in while employed by ADP. Accordingly,
the judge concluded that "rather than blue-penciling the problematic 2014
[RCA] non-solicitation provision, [he would] hold [Karamitas] to the previous
non-solicitation clause, which he clearly signed and has conceded is
reasonable."
The judge then addressed the alleged breaches under the terms of the
enforceable 2011 and 2012 non-solicitation clauses. He found Karamitas had
only solicited one client, which he had conceded. As for the remaining clients
that ADP alleged Karamitas attempted to solicit, the judge found either an
absence of proof, or that the solicitations did not violate the non-solicitation
clauses in the NDA or the 2011 and 2012 RCAs.
With regard to the alleged violation of the non-compete clause, the judge
found that Karamitas worked in a different "market share" at USG, because he
A-4664-16T1
25
was selling to employers with 200 to 500 employees, whereas at ADP he sold
to employers with less than 150 employees. Therefore, the judge blue-
penciled the term "territory" in the non-compete provisions to include the
market share in which Karamitas sold while at ADP. The judge found
Karamitas had not breached the blue-penciled non-compete provision. Finally,
in the August 30, 2017 order, the judge denied ADP's claims for inevitable
disclosure, breach of the duty of loyalty, unfair competition, and attorney's
fees.
D.
In April 2006, ADP hired defendant Nick LeNoble as a sales trainee in
the small business sales division, which sold products to clients with less than
fifty employees. Upon his hiring, LeNoble signed a SRA, prohibiting him
from soliciting any of ADP's clients, or bona fide prospective clients, within a
seventy-five mile radius of the territory he covered at ADP during the year
prior to his termination. He was also prohibited from disclosing any
confidential information learned during his employment.
LeNoble received several promotions over the next few years. He
served as district manager, and senior district manager for the Madison,
Wisconsin area. He then became sales manager for the Milwaukee area, and
then a senior sales manager for the greater metropolitan Chicago area,
A-4664-16T1
26
covering the city's northwest suburbs, though not the city itself. In 2015, ADP
promoted him to senior sales manager of the "CPA Centric team," a group
tasked with obtaining referrals for potential clients from accountants and bank
contacts, covering the same area just outside the city of Chicago.
During his time at ADP, LeNoble met the incentive stock award
requirements in 2008 and in 2010 to 2015, accepted those stock awards, and
agreed to seven RCAs. Like with the other defendants, it is the 2014 RCA
that is at issue before us. 11
LeNoble terminated his employment with ADP in 2016, and began
working for USG the following week. As a strategic development manager at
USG, he sold the same payroll and human resources products and services that
he had at ADP and did so in a partially coincident geographical territory — all
of Illinois, except Cook and Lake counties. However, his coverage area at
USG extended to a different customer base — employers with 200 to 500
employees.
Although LeNoble had spent his entire tenure at ADP within the small
business sales division, ADP executives testified at their depositions that the
11
The 2015 RCA agreed to by LeNoble did not differ from the 2014 iteration
other than some minor wording changes not relevant to our review.
A-4664-16T1
27
information gained from selling to companies with fewer than fifty employees
at ADP could be used in selling to employers with 200 to 500 employees
Additionally, during LeNoble's employment at ADP, he was privy to
confidential information about ADP's clients through his access to the
Salesforce database, 12 which covered not only his own clients, but also those of
the sales representatives under his management. He also became familiar with
the company's product pricing, profit margins, and the details of many of its
sales campaigns meant to compete with other payroll firms.
LeNoble attended seminars addressing new products and sales strategies,
which featured presentations from multiple ADP business units. Moreover,
LeNoble himself conducted training sessions with other sales representatives,
including crafting responses to customer concerns with ADP products.
12
An ADP executive described the Salesforce database as follows:
Salesforce is our customer database. . . . [T]his is
where we house all of our information on our clients
and our prospective clients. It's essentially how our
sales associates manage their business, manage their
territory. It includes everything from . . . [the] name
of the company to the address, number of employees,
who their current provider is. . . . Not only the
competitive provider, but just the history of what
happened within . . . that account. So you can see . . .
all the transactions that might have taken place from
an activity standpoint and what the result of that
activity was within that account.
A-4664-16T1
28
LeNoble acknowledged that, during his first year at USG, he had
successfully solicited business from several existing ADP clients, and from
prospective clients that ADP was also actively soliciting. All of the companies
were located within the greater Chicago area that LeNoble had covered at
ADP.
LeNoble testified he sent marketing emails to potential clients he
believed were using ADP's products or services. In one communication,
LeNoble advised: "After spending [ten] years with ADP myself, I learned of
some really great differences in the market place about [USG]." Moreover, he
discussed his experience at ADP with a USG coworker in May 2016, stating in
an email: "I will tell you that service [at ADP] has not changed. They are still
throwing unqualified people into the mix and under training them then putting
these undertrained people client facing. They are also moving specialists off
of client accounts quickly so it feels like a revolving door."
Following discovery, LeNoble and ADP filed cross-motions for
summary judgment. Prior to addressing whether LeNoble breached the SRA
and RCA, the trial judge observed in a written opinion on January 24, 2018,
that ADP had a legitimate interest in protecting its confidential information
and client relationships. However, despite this, the judge concluded that the
RCAs were broader than required to protect those interests. He recounted that
A-4664-16T1
29
LeNoble had spent his entire tenure with ADP in a division responsible for
selling only to customers with fewer than fifty employees. The judge
concluded the evidence ADP presented failed to establish that LeNoble had
any relationships with larger customers like those he currently dealt with at
USG or had access to the specific confidential client information required to
develop such relationships.
Nonetheless, because ADP did have some legitimate interests warranting
protection, the judge determined, as a matter of equity, the RCAs should be
blue-penciled to narrow their restrictions to protect the kind of confidential
information LeNoble had gained from ADP. In particular, he concluded that
the non-competition clauses in the RCAs should be limited to his ADP
territory area, the northwest Chicago suburbs, and to employers with fewer
than fifty employees. The non-solicitation clauses, meanwhile, would be
limited to prevent LeNoble from soliciting, for one year following his
termination from ADP, any of ADP's clients with fewer than fifty employees,
any of its clients whose business he had actively solicited within the two years
preceding his departure, and any of its prospective clients with fewer than fifty
employees that LeNoble had acquired confidential information about while
working for ADP.
A-4664-16T1
30
The judge dismissed the breach of the duty of loyalty and unfair
competition claims, finding that ADP had failed to support its allegations. The
judge also denied ADP's request for counsel fees.
E.
ADP hired defendant Michael DeMarco in July 2010 as a district
manager in the Austin, Texas area for its small business sales division.
DeMarco's clients were companies comprised of between one and forty-nine
employees.
DeMarco signed both an SRA and NDA upon his hiring. Like the other
defendants' initial SRAs, DeMarco's agreement included equivalent
nondisclosure requirements. He was prohibited for one year from soliciting
any of ADP's clients, or bona fide prospective clients, with which he had been
"involved or exposed," but only in the territory he had covered during the two -
year period prior to his resignation.
After meeting his sales goals from 2012 through 2014, DeMarco
accepted the opportunity to participate in the stock award program and,
subsequently, entered into RCAs in each of those years. DeMarco's 2014 RCA
is the same as that executed by the other defendants.
DeMarco was promoted in 2012 and, for the remainder of his tenure,
served as a core market representative in the major accounts division, which
A-4664-16T1
31
handled clients with 50 to 1000 employees. He was specifically responsible
for selling the company's payroll and tax processing services to entities with
50 to 125 employees.
During his employment, ADP provided DeMarco with training on the
products and services he sold, including its payroll processing software and an
understanding of benefits administration. An ADP executive testified
DeMarco was privy to contact and background information for his own clients
and any prospective clients within his region through the company's Salesforce
database, and had access to pricing and marketing strategies, internal sales
data, and information about future products and services. The supervisor also
noted that as a former ADP employee, DeMarco possessed a unique level of
credibility if he pointed out any shortcomings in ADP's products or services
when soliciting a potential client for a new employer.
DeMarco left ADP and began working for USG in 2015. As a strategic
development manager, DeMarco was responsible for selling the same kind of
products and services as he had at ADP in an area that included Austin, but
also spread to other parts of central Texas, New Mexico, and parts of Missouri.
He handled a somewhat different customer base — companies with 200 to 500
employees — than he had at ADP. He was later promoted and became
A-4664-16T1
32
responsible for employers with 500 to 1500 employees in central Texas, again
including Austin.
DeMarco acknowledged at his deposition that, during his first year at
USG, he successfully acquired four of ADP's existing clients and one
prospective client he had previously solicited while working at ADP. In fact,
in pursuing and securing the prospective client's business for USG, DeMarco
dealt with at least one person he had met while seeking that client's business
for ADP.
DeMarco also conceded that another client's representative contacted
him after his move to USG, believing he was still working for ADP. DeMarco
explained his change in employment, but added her to his contact list, and
eventually invited her to a USG presentation. Soon after the presentation, the
representative sent him an email, asking:
Since we have ADP now, and you know the features
of the ADP . . . product that we are considering, I'd
like your objective look at how Ultimate Software
compares. Of essential importance to us is that you
can accommodate our needs globally for time off
tracking. I also want to know your implementation
expertise and customer service following
implementation. Will want references that have gone
ADP to Ultimate.
A-4664-16T1
33
DeMarco subsequently obtained that client's business. As a result of losing that
client, DeMarco's former ADP supervisor testified that the revenue derived
from that client dropped from $165,213.23 in 2016 to $650.82 in 2017.
The parties filed competing summary judgment motions. As he had in
Kusins, the judge determined in an April 18, 2018 order that the RCAs were
anticompetitive and, therefore, unenforceable. Although he found ADP had
identified legitimate interests in protecting its confidential information, he
reasoned that protection was already afforded to all employees by the SRAs
and NDAs signed upon their hiring. Moreover, he found that every ADP sales
representative, regardless of his or her rank in the company, was exposed to
the same confidential information.
The judge concluded that DeMarco had violated his SRA and NDA by
soliciting a prospective client following his resignation from ADP, but denied
any relief under those agreements because ADP had not shown damages
sufficient to justify a monetary award. The judge also dismissed the claims of
breach of loyalty and unfair competition for ADP's failure to support its
allegations. ADP's applications for counsel fees and injunctive relief were
denied.
Despite his ruling, the judge commented that if the RCAs were
enforceable, they nevertheless required blue-penciling. He would limit the
A-4664-16T1
34
non-solicitation provision to the geographical territory DeMarco serviced
while at ADP and to customers with no more than 150 employees.
F.
Defendant Daniel Hobaica began at ADP in 2008 as a sales associate in
the small business services division in Arizona, soliciting business from
companies with one to forty-nine employees. At the time of his hiring,
Hobaica signed an NDA similar to the initial non-disclosure and non-
solicitation provisions already discussed. He was specifically prohibited, for
one year, from soliciting any ADP clients he was involved with during the
two-year period prior to his resignation.
Hobaica was promoted numerous times within the division before being
moved to the major account services division. In major accounts, he served
first as a business process outsourcing district manager, handling clients with
50 to 150 employees, and then as upmarket district manager, managing clients
with 150 to 999 employees. He spent his final two years at ADP in the
upmarket district position, selling ADP's payroll and human resources products
and services to an area covering about one third of Arizona.
Hobaica received several weeks of training during his first year at ADP
and additional training throughout his employment. He attended meetings
with other sales representatives, where they shared confidential information
A-4664-16T1
35
regarding the company's new products, sales strategies, and prospective
clients; he also had access to the Salesforce database.
In a certification, Hobaica's former supervisor explained the insight sales
representatives have into ADP's products and services, such as, their strengths
and weaknesses, how the company sells them, how they differ from
competitors, their pricing models and costs, and improvements to current
products or products in development. Further, the supervisor certified that a
former ADP employee "will know a significant amount of confidential
information about ADP and will be able to tailor his or her proposal" to an
ADP client without disclosing he or she was a former ADP employee.
During his time at ADP, Hobaica met the incentive stock award
requirements in 2010-2012, 2014, and 2015, accepted those stock awards, and
agreed to five RCAs.
Hobaica resigned from ADP in 2016 and began working at USG as a
strategic development manager, selling to companies with 200 to 500
employees in an area covering his prior ADP territory of Arizona, as well as
Nevada, Hawaii, and Alaska. At his deposition, Hobaica acknowledged selling
the same sort of products and services at USG as he had at ADP, and to
competing with his former employer for prospective clients. In his first year,
A-4664-16T1
36
Hobaica admitted he acquired two of ADP's existing clients for USG, and
solicited another, whose representatives he met while still working for ADP.
In considering the parties' cross-motions for summary judgment, the trial
judge made similar determinations as he had in DeMarco and Kusins. He
found the RCAs were anticompetitive and unenforceable. He also determined
Hobaica had breached the NDA by soliciting actual and prospective ADP
clients, but ADP had failed to support a claim for relief. However, the judge
advised that if the RCAs were enforceable, he would blue-pencil them in
accordance with his determination in DeMarco — limiting the non-solicitation
provisions only to the geographical territory and market segment Hobaica
serviced while at ADP. The remaining claims were dismissed under the April
23, 2018 order.
II.
On appeal, ADP challenges the judge's conclusion in Kusins, DeMarco,
and Hobaica that the RCAs were anti-competitive and therefore unenforceable.
ADP also asserts both judges' blue-penciling of the RCAs was excessive,
unreasonable, and inconsistent. Finally, ADP contends the judges erred in
granting defendants summary judgment on its claims for breach of duty of
loyalty and unfair competition, and that it was entitled to counsel fees and
costs.
A-4664-16T1
37
We review a summary judgment order de novo, applying the same
standard used by the trial court. Davis v. Brickman Landscaping, Ltd., 219
N.J. 395, 405 (2014). We must determine whether, viewing the facts in the
light most favorable to the non-moving party, the moving party has
demonstrated there are no genuine disputes as to any material facts and they
are entitled to judgment as a matter of law. R. 4:46-2(c); Davis, 219 N.J. at
406; Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).
A.
For more than a century, our courts have considered, and validated,
contractual restraints against post-employment competition. See Mandeville v.
Harman, 42 N.J. Eq., 185, 189-90 (Ch. 1886) (holding a non-compete
agreement is valid if it is reasonable, provides fair protection to the employer,
and does not interfere with the interests of the public). However, during that
time, New Jersey generally held that if a noncompetitive agreement was
deemed overly broad, it was struck as void per se. See, e.g., Solari Indus., Inc.
v. Malady, 55 N.J. 571, 583 (1970).
In its landmark Solari decision, the Supreme Court changed that policy
to permit "the total or partial enforcement of noncompetitive agreements to the
extent reasonable under the circumstances." Id. at 585. Under Solari, a
restrictive covenant is deemed enforceable if it "simply protects the legitimate
A-4664-16T1
38
interests of the employer, imposes no undue hardship on the employee, and is
not injurious to the public," in addition to the particular restrictions being
reasonable in duration, area, and scope of activity. Id. at 576, 581-82; see also
Coskey's Television & Radio Sales & Serv., Inc. v. Foti, 253 N.J. Super. 626,
634 (App. Div. 1992). The employer bears the burden of establishing the
agreement's enforceability. Ingersoll-Rand Co. v. Ciavatta, 110 N.J. 609, 638
(1988). Moreover, a court's ultimate determination requires a "fact-sensitive"
analysis to the circumstances of each case. Platinum Mgmt., Inc. v. Dahms,
285 N.J. Super. 274, 294 (Law Div. 1995).
Our Supreme Court has instructed that a determination of the
enforceability of a restrictive covenant requires a court to balance the
employer's need to protect its legitimate interests against the hardship placed
on the employee by the agreement. Ingersoll-Rand Co., 110 N.J. at 634-35.
An employer's legitimate interests include the protection of trade secrets or
proprietary information, as well as customer relationships. Whitmyer Bros.,
Inc. v. Doyle, 58 N.J. 25, 33 (1971). It also includes the protection of
information that, while not a trade secret or proprietary, is nonetheless "highly
specialized, current information not generally known in the industry, created
and stimulated by the . . . environment furnished by the employer, to which the
A-4664-16T1
39
employee has been 'exposed' and 'enriched' solely due to his employment."
Ingersoll-Rand Co., 110 N.J. at 638.
With that said, an employer does not have a legitimate interest in simply
preventing competition. See Whitmyer Bros., 58 N.J. at 635. Consequently,
"[c]ourts will not enforce a restrictive agreement merely to aid the employer in
extinguishing competition, albeit competition from a former employee."
Ingersoll-Rand Co., 110 N.J. at 635. Indeed, the "knowledge, skill, expertise,
and information acquired by an employee during his employment become part
of the employee's person," and the employee may "use those skills in any
business or profession he may choose, including a competitive business with
his former employer." Ibid.
In weighing the hardship placed on an employee by an RCA, a court
must determine "the likelihood of the employee finding other work in his or
her field, and the burden the restriction places on the employee." More, 183
N.J. at 59. Therefore, "the geographic, temporal, and subject-matter
restrictions of an otherwise enforceable [RCA] will be enforced only to the
extent reasonably necessary to protect the employer's legitimate business
interests." Campbell Soup Co. v. Desatnick, 58 F. Supp. 2d 477, 489 (D.N.J.
1999) (citing Foti, 253 N.J. Super. at 634).
A-4664-16T1
40
After a court analyzes the Solari/Whitmyer factors, the RCA may be
disregarded entirely, or given "total or partial enforcement to the extent
reasonable under the circumstances." Whitmyer, 58 N.J. at 32 (citing Solari,
55 N.J. at 585). As noted, courts have discretion to limit or "blue-pencil" the
application of an RCA in terms of the geographical area, period of
enforceability, and scope of prohibited activity. Solari, 55 N.J. at 585;
Campbell Soup Co., 58 F. Supp. 2d at 489.
One trial judge found the RCAs to be anti-competitive and, therefore,
unenforceable. Although the other judge did not specifically address whether
the RCAs were unreasonable restraints on trade, he did state in Karamitas:
"[T]here is, of course, a very protectable interest in preserving the customer
information and relationships that . . . Karamitas fostered while working at
ADP. And the [c]ourt's already enforced that and it's continuing to enforce it."
From this statement, we infer the second judge accepted ADP's assertion that
the RCAs were necessary to protect a legitimate business interest. This
inference is bolstered by the judge's determination that the non-compete and
non-solicitation clauses in the RCAs were overly broad, necessitating a blue-
penciling of their application to Hopper's, Karamitas's, and LeNoble's
particular circumstances.
A-4664-16T1
41
While these cases were pending on appeal, ADP litigated numerous
matters in the federal district courts in New Jersey and elsewhere. Like the
orders under review here, the results were inconsistent. See ADP, LLC v.
Lynch, Nos. 2:16-01053, 2:16-01111, 2016 U.S. Dist. LEXIS 85636, at *22-
*24 (D.N.J. June 30, 2016), aff'd, 678 F. App'x 77, 80 (3d Cir. 2017) (finding
the RCAs were reasonable after blue-penciling the requirement that defendants
were prevented from soliciting potential ADP clients, but only to the extent
that they gained knowledge of those clients through their employment with
ADP); ADP, LLC v. Jacobs, No. 2:15-3710, 2015 U.S. Dist. LEXIS 103207, at
*11-*12 (D.N.J. Aug. 5, 2015) (granting ADP a preliminary injunction after
blue-penciling the RCA to prevent defendant from soliciting potential ADP
clients that he gained knowledge of while employed with ADP); ADP, LLC v.
Manchir, No. M2016-02541-COA-R3-CV, 2017 Tenn. App. LEXIS 737, at
*14, *22-*24 (Tenn. Ct. App. Nov. 8, 2017) (affirming that the RCA was
narrowly tailored, "not merely a restraint on general competition," and ,
therefore, reasonable and enforceable under New Jersey law).
Earlier this year, the Third Circuit considered ADP's 2014 and 2015
RCAs, concluding that, although the covenants were overbroad, the RCAs
were not unenforceable in their entirety. ADP, LLC v. Rafferty, 923 F.3d 113
(3d Cir. 2019). In applying the Solari criteria, the Third Circuit found ADP
A-4664-16T1
42
had "a legitimate business interest in imposing the RCA on [its successful
salespeople], and the RCA's heightened restrictive covenants, over and above
those in the SRA and NDA, are reflective of the greater damage those
employees could inflict on ADP upon their departure." --
Id. at 123. We agree.
Here, multiple ADP supervisors and managers testified to the specialized
training, leadership development programs, sales development, and skills
seminars provided to the high-performing employees. Defendants themselves
taught workshops and training programs. The top-tier employees were also
granted access to specialized software, databases, and current and prospective
client lists and information. The record reflects ADP spends significant time,
energy and money in soliciting clients and developing client relationships and
good will.
Defendants do not dispute the depth, and extent, of the customer
relationships they were trained to develop and did develop while at ADP. It
cannot be a coincidence their subsequent employment was with a direct
competitor of ADP. It is their expertise at developing and closing sales, and
their knowledge of ADP's strategies and pricing information that made them
attractive and valuable to a competitor.
ADP's business is providing services to its clients. Protecting its
customer relationships is paramount to its success. We are satisfied ADP has
A-4664-16T1
43
presented ample evidence that acquiring and retaining its customers requires "a
significant investment of time, effort and money which is worthy of
protection." A.T. Hudson & Co. v. Donovan, 216 N.J. Super. 426, 434 (App.
Div. 1987). We conclude that ADP has demonstrated a legitimate and
protectable interest in its customer relationships sufficient to justify
enforcement of its RCA.
Defendants argue that even if on its face the RCA protects a legitimate
business purpose, that purpose is abrogated by its imposition only on a certain
group of employees. Agreeing to the RCA only entitled an employee to
receive a stock award; it did not affect the status of one's employment. We are
unpersuaded.
The stock award incentive program was only offered to ADP's top-
performing employees. It was packaged as an incentive to meet or exceed
certain sales targets and given as an award for doing so. It reflects a merit or
bonus system present in most business settings. These employees have
excelled at creating or continuing ADP's customer relationships, which ADP
seeks to protect. To be successful in their sales position, defendants must have
demonstrated extensive client contact. Therefore, defendants have a greater
ability than less successful employees to cause harm to ADP's customer
relationships upon leaving the company and joining a competitor.
A-4664-16T1
44
ADP representatives described the harm sustained to its relationships
with particular customers resulting from defendants' actions post-resignation.
They provided specific instances of clients drastically reducing their business
with ADP or terminating its services altogether. Defendants themselves
attested to the advantages they had in their new jobs because of their ADP
training and specialized information attained during their prior employment.
LeNoble discussed the weaknesses of ADP's products with ADP's clients he
was soliciting for USG. Karamitas admitted he did not need any training upon
joining USG "[b]ecause [he] knew the industry well."
The imposition of the RCA on only high-level employees does not
change our determination that the covenant served ADP's purpose of
protecting its business interest – its customer relationships. As demonstrated
by defendants, the top-performing employees have the greatest potential to
damage ADP's relationship with its current and prospective clients.
We now turn to the analysis of whether ADP's need to protect its
business interests is outweighed by any hardship the RCAs impose on
defendants as former employees. 13 It cannot be disputed the RCAs impose a
13
Defendants do not challenge the RCA's one-year temporal limitation;
therefore, other than confirming it is a reasonable term, we need not address it
further. See, e.g., Laidlaw, Inc. v. Student Transp. of Am. Inc., 20 F. Supp. 2d
727, 761 (D.N.J. 1998) (holding a one-year restriction valid).
A-4664-16T1
45
degree of hardship on employees who leave ADP and work in the same field
for another company. We must determine whether that hardship is undue.
Under the 2014 RCA, an ADP employee is prevented from soliciting
business from -
all- of ADP's 620,000 existing clients, not just those the
employee had substantial dealings with or acquired knowledge about while at
ADP. We find this unreasonable. That restrictive language is untenable as an
ADP employee could not possibly know all of ADP's actual clients.
Therefore, it is necessary to blue-pencil the RCA to achieve the balance of
protecting ADP's interests against the hardship it imposes on former
employees.
We conclude that a non-solicitation clause and non-compete clause may
prevent an employee from having any dealings with existing ADP clients that
the employee was actively involved with or whose names the employee
learned during his or her employment.
The RCA also prohibits a former employee from soliciting any
prospective client that ADP "reasonably expects" to provide business to within
the two-year period following the employee's departure. The non-compete
clause blocks a former employee from working with a competing business and
selling the same services in the geographic area in which they worked while at
ADP.
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In Rafferty, ADP conceded before the Third Circuit that the RCA's non-
solicitation clause pertaining to prospective clients was overbroad and should
be blue-penciled. 923 F.3d at 126. Here, ADP has agreed that the non-
solicitation clause should only be enforced as to prospective clients that
defendants had knowledge of during their ADP employment.
We agree that the RCA's non-solicitation clause regarding prospective
clients is overly broad and places an undue hardship on ADP's former
employees. Due to the breadth of ADP's worldwide reach, any company
defendants approach might be a potential "prospective" ADP client. We
cannot envision any practical manner in which defendants could conduct
business without offending this provision. That is an unreasonable burden and
undue hardship, and therefore subject to blue-penciling. We conclude that the
clause pertaining to prospective clients may only be enforced against a former
employee who gained knowledge of a potential client while at ADP and
directly or indirectly solicits that client after leaving and working for a
competitor.
We also note that because defendants all voluntarily left ADP to join a
direct competitor, they cannot assert their termination as a hardship for our
consideration. See More, 183 N.J. at 59 ("If the employee terminates the
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relationship, the court is less likely to find undue hardship as the employee put
himself or herself in the position of bringing the restriction into play.").
Defendants do not contest the RCA's geographical limitation. As our
courts have stated, the inclusion of a geographic restriction is common and a
reasonable component of an RCA. Platinum Mgmt., Inc., 285 N.J. Super. at
299. However, in Karamitas, LeNoble, DeMarco, and Hobaica, the judge
loosened the covenant's restriction by blue-penciling the geographical
limitation in these clauses to also include a market segment. Under that
modification, a former employee could only violate the RCA if he provided
similar services for his new employer or solicited ADP clients in both his
former ADP geographical territory and in the market segment he serviced
while at ADP.
We cannot discern any rationale in the record to blue-pencil a market
segment component into the RCA. There is no evidence that the specialized
training, information, or strategic client skills defendants obtained at ADP
differed according to the number of employees in the companies they serviced.
The customer relationships ADP seeks to protect are the same, regardless of
how many employees the client might have.
Defendants have not demonstrated a specific hardship requiring a
modification to the territorial clause. Therefore, we reverse the rulings in
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Karamitas, LeNoble, Demarco, and Hobaica that blue-penciled a market
segment component into the RCA. The portions of the non-compete and non-
solicitation clauses that prohibit defendants from providing services for a
competitor or soliciting ADP's clients within the same territory they worked in
at ADP are enforceable.
In analyzing the final Solari factor, we must consider whether
enforcement of the RCA causes harm to the public. Defendants have not
argued the covenants have any injurious effect on the public and we discern no
public component to the RCA. As our courts have previously stated, a
geographical restriction on a former employee "impinges only slightly on the
public interest." Mailman, Ross, Toyes & Shapiro v. Edelson, 183 N.J. Super.
434, 442 (1982).
Therefore, we conclude that the RCA is not unenforceable per se, but is
subject to blue-penciling regarding both the solicitation of prospective ADP
clients and the solicitation of ADP's actual clients to require that defendants
were actively involved with or had knowledge of these clients while at ADP.
III.
Having found the RCAs reasonable as blue-penciled, we consider the
covenant's application to each defendant. In some instances, because there is a
complete factual record before us, we need not remand for a determination of
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whether the individual defendant breached the RCA. Indeed, it cannot be
disputed that all of the defendants developed client relationships at ADP that
they have exploited following their employment at USG.
A.
For the reasons already stated, we reverse the judge's conclusion in
Kusins that the RCA was anticompetitive and unenforceable. In applying our
blue-penciled modifications to the non-solicitation and non-compete clauses, it
is clear Kusins breached both of those provisions in his employment with
USG. He solicited clients he had worked with at ADP, sought business from
several of ADP's prospective clients that he was in contact with while at ADP,
he encouraged his USG co-workers to solicit ADP's clients, and at USG he
sold services in three of the states he had operated in at ADP. 14
Although the judge rejected the RCA's enforceability, he found Kusins
breached the initial SRA's non-solicitation clause, entitling ADP to an
equitable tolling of the agreement. Kusins was enjoined from soliciting or
communicating "with any ADP actual or prospective client known to [him]
while he was employed by ADP" for one year from the court's order. During
that time, Kusins was also prohibited from soliciting or recruiting any of
14
Kusins also breached the non-use provision each time he discussed ADP's
clients with his colleagues at USG.
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ADP's employees, and using or disclosing "ADP's confidential, proprietary, or
trade secret business information or property."
Although we disagree with the judge's rulings on the RCA's
enforceability, we are satisfied the injunctive relief afforded ADP was
reasonable and fulfilled the goals of the RCA. The judge did not abuse its
discretion in exercising its equitable powers. It is not clear, however, whether
Kusins complied with the judge's restrictions. On remand, the trial court must
determine whether Kusins complied with the prior injunctive order. If not, the
court shall consider a tolling period as permitted under the RCA.
Because we have found the RCA is enforceable, ADP is also entitled to
assert a claim for attorney's fees and costs. N. Bergen Rex Transp., Inc. v.
Trailer Leasing Co., 158 N.J. 561, 570 (1999) (explaining parties may agree to
contractual fee shifting provisions). Therefore, we remand Kusins to the trial
court for a determination of whether ADP "substantially prevail[ed]" in the
litigation and if a counsel fee award is appropriate.
Kusins filed a cross-appeal asserting the judge erred in equitably tolling
the provisions of the SRA. In light of our decision affirming the judge's
remedy, the cross-appeal is denied.
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B.
ADP alleges that Hopper's successful solicitation of four ADP clients
and attempted solicitation of an ADP employee, after beginning his
employment at USG, violated the non-solicitation clause of the RCA. 15 The
judge found the non-solicitation clause regarding ADP's actual clients was
overbroad and blue-penciled a geographic restriction into the provision,
forbidding the solicitation of ADP's clients only within the territory Hopper
had served while at ADP. Because Hopper was working at USG in a different
territory than he had at ADP, the judge found he had not breached the blue-
penciled RCA.
The judge further concluded that Hopper had improperly solicited an
ADP employee, but termed it a "minimal violation." He therefore denied a
tolling period and counsel fees. ADP's remaining claims for inevitable
disclosure of its protected information, breach of the duty of loyalty, and
unfair competition were dismissed on summary judgment.
As previously discussed, prohibiting the solicitation of ADP's actual
clients is a reasonable legitimate business interest. The RCA's overriding
purpose is the protection of ADP's existing client relationships. It is of no
15
Because Hopper worked at USG in a different territory then he had serviced
while at ADP, he did not violate the covenant's non-compete clause.
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import that the ADP clients Hopper solicited were not located in his previous
geographic territory. The RCA seeks to protect existing customer
relationships, and, as we have established, is enforceable. A geographic
limitation is not necessary. As a result, Hopper breached the RCA in soliciting
ADP's current clients and employees.
The RCA's one-year period has long expired. Therefore, on remand, the
trial judge should determine the appropriate tolling period for Hopper's
violations of the covenant. The judge must also consider ADP's application
for counsel fees.
C.
In response to ADP's order to show cause and request for preliminary
injunction, Karamitas conceded he had attempted to solicit at least one client
after starting work at USG, but was unsuccessful. ADP's request for
temporary restraints was granted, enjoining Karamitas, during the pending
litigation, from: (1) soliciting any actual or prospective ADP client that he had
contact with while employed by ADP; (2) using or disclosing any of ADP's
confidential or proprietary information at any time; and (3) interfering in any way
with any ADP contract or client relationship that he gained knowledge of through
his prior employment with ADP.
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As in Hopper, the judge found the non-solicitation clause of the RCA
regarding actual ADP clients to be overly broad. However, instead of blue-
penciling the provision, as he had done earlier that day in his Hopper ruling,
the judge decided to "hold [Karamitas] to the previous non-solicitation clause"
that he signed in the 2011 and 2012 RCAs. The judge found these clauses
required ADP to show Karamitas was involved with the clients while at ADP.
As we have found the 2014 RCA non-solicitation clause to be enforceable, we
reverse that portion of the judge's ruling.
Karamitas admitted to one violation of the RCA. ADP presented
evidence of at least a dozen more solicitations of its actual clients. However,
because the judge assessed the factual evidence under the 2011 and 2012
RCA's non-solicitation clause, he found there was either an absence of proof or
the solicitations did not violate those earlier agreements. We must, the refore,
remand the issue of whether Karamitas breached the 2014 RCA by soliciting
ADP's actual clients after joining USG.
Karamitas also breached the non-compete clause as he provided services
to clients at USG in the same territory he serviced while at ADP. As we have
stated, it was unreasonable, and factually unsupported, to blue-pencil a market
segment into the territorial restriction. The specialized training and
confidential information Karamitas acquired from ADP was useful to him in
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his dealings with any potential client, regardless of the company's number of
employees. The non-compete provision was intended to protect all of ADP's
customer relationships in the geographical area in which its former employees
had worked.
Therefore, Karamitas breached both the RCA's non-solicitation and non-
compete clauses. On remand, the trial judge must determine the proper
remedy for these violations. The judge must also consider ADP's application
for counsel fees.
D.
LeNoble began working at USG the week after he left ADP. He
acknowledged during his deposition that he had successfully solicited business
from three of ADP's actual clients and two prospective clients that ADP was
also soliciting. All of these clients were located within the territory LeNoble
had serviced at ADP. Although acknowledging ADP had a legitimate interest
in protecting its client relationships and confidential information, the judge
blue-penciled both the non-solicitation and non-compete clauses to prohibit
LeNoble only from working with businesses in his prior ADP territory ---
and in
the same market segment LeNoble worked in at ADP.
As we have found the market share component to be an unreasonable
limitation, we reverse that aspect of the ruling. With the elimination of that
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restriction, the record clearly reflects LeNoble breached both clauses at issue.
He solicited actual ADP clients in the territory he worked in while at ADP, and
he solicited prospective clients in his prior territory, despite knowing that ADP
was also actively soliciting those clients.
Therefore, we remand to the trial court to craft the appropriate remedy
for these breaches, applying the tolling period permitted under the RCA. The
court shall also consider any counsel fee application.
E.
As stated, one judge found the RCAs to be anti-competitive as a restraint
on trade and, therefore, unenforceable. In the alternative, he considered that
the RCAs could be narrowly tailored to fit the legitimate interests ADP sought
to protect. Therefore, in DeMarco and Hobaica, the judge blue-penciled the
non-solicitation provision to limit it only to ADP's actual clients or prospective
clients with whom DeMarco and Hobaica had contact at ADP and to the
geographical territory and market segment that each defendant had serviced
while at ADP. He concluded that the RCAs, as blue-penciled, had "no
application to the facts of this case." In applying our determination of the
RCA, we reverse that ruling.
DeMarco conceded that he acquired four of ADP's existing clients
during his first year at USG and one prospective client who he had solicited
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himself while he was at ADP. The clients were all located in the territory
DeMarco serviced at ADP. Demarco admitted to selling the same products
and services he sold at ADP. The facts are undisputed that DeMarco violated
both the RCA's non-solicitation and non-compete clauses. We remand to the
trial court to determine the appropriate remedy for the breaches and to consider
ADP's counsel fee application.
F.
Upon commencing employment at USG, Hobaica successfully acquired
two of ADP's existing clients and solicited another customer he had met while
working at ADP. Hobaica admitted to selling the same type of products and
services at USG as he had at ADP and working in some of the same
geographical areas. He acknowledged he competes with ADP for prospective
clients. The undisputed facts support a conclusion that Hobaica violated both
provisions of the RCA. Therefore, we remand to the trial court to determine
the appropriate remedy for the breaches and to consider ADP's counsel fee
application.
IV.
Both judges granted summary judgment to defendants on ADP's claims
of inevitable disclosure, breach of loyalty, and unfair competition. Because we
have concluded each defendant violated the RCA, and ADP is entitled to
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injunctive relief, ADP's inevitable disclosure doctrine is moot and we need not
consider it.
We also affirm the summary judgment order dismissing the claims of
breach of loyalty and unfair competition. Our Supreme Court has stated:
"Loyalty from an employee to an employer consists of certain very basic and
common sense obligations." Lamorte Burns & Co. v. Walters, 167 N.J. 285,
302 (2001). "An employee must not . . . act contrary to the employer's
interest" or "compete with his or her employer" during the period of
employment. Ibid. (first citing Chernow v. Reyes, 239 N.J. Super. 201, 204
(App. Div. 1990); and then citing Cameco, Inc. v. Gedicke, 157 N.J. 504, 517-
18 (1999)).
However, the duty does not necessarily cease when the employment
relationship is terminated. See Walters, 167 N.J. at 302-03. Our Court has
recognized that "an employee's taking of legally protected information from
his or her employer, in order to seek a competitive advantage upon resignation,
constitutes a breach of the duty of loyalty." Id. at 304.
None of the defendants took any physical documents from ADP when
they resigned. Instead, ADP contends their knowledge of ADP's confidential
information, gleaned while employed at ADP, should be enough to establish a
breach of loyalty. We disagree. ADP has not identified any specific
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disclosure of confidential information to support its claim. As noted earlier,
the general knowledge gained by defendants while employed at ADP is not a
protectable business interest and, without demonstrating that they improperly
used that information, ADP is unable to establish a breach in their duty of
loyalty.
In light of that conclusion, we also reject ADP's claim of unfair
competition. This common law business tort is an "amorphous" area of law
and is generally defined as the "misappropriation of one's property by another
. . . which has some sort of commercial or pecuniary value." Duffy v. Charles
Schwab & Co., 97 F. Supp. 2d 592, 600 (D.N.J. 2000) (quoting N.J. Optometric
Ass'n v. Hillman-Kohan Eyeglasses, Inc., 144 N.J. Super. 411, 427 (Ch. Div.
1976)).
In sum, we reverse the orders granting summary judgment. We blue-
pencil the RCAs to prohibit the direct or indirect solicitation of ADP's actual
clients defendants had substantial dealings with while at ADP or who
defendants had knowledge of during their prior employment. We also blue -
pencil the clauses to prevent the direct or indirect solicitation of ADP's
prospective clients that a former employee gained knowledge of during his
employment at ADP.
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The geographical limitation in the non-compete clause is a reasonable
restriction. A market segment restriction is not. Because ADP demonstrated a
legitimate protectable business interest and the RCAs as blue-penciled did not
impose an unreasonable hardship on defendants, the RCAs are enforceable.
We are satisfied these blue-pencil modifications result in "narrowly tailored"
provisions that "ensure the covenant is no broader than necessary" with respect
to its duration, area, and scope of prohibited activities in order to "protect the
employer's interests." More, 183 N.J. at 58-59.
We remand Karamitas to the trial court for a determination of whether
he breached the 2014 RCA in soliciting actual ADP clients after joining USG.
In all of the matters other than Kusins, we remand for a determination of the
appropriate remedy for each defendant's breach of the RCA, including a tolling
of the time limitations of the RCAs during the period of defendants' violations.
The court in all six cases shall also consider the propriety of a counsel fee
award commensurate with each defendant's violations.
Reversed and remanded for proceedings consistent with this opinion.
We do not retain jurisdiction.
I hereby certify that the foregoing
is a true copy of the original on
file inmy office. ~t~
CLERK OF THE A P ~TE DIVISION
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