ADP, LLC v. PITTMAN

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY

ADP, LLC,

Civ. No. 19-16237 (KM) (MAH)

Plaintiff,

OPINION

v.

SUMMER PITTMAN,

Defendant. □

KEVIN MCNULTY, U.S.D.J.:

Defendant Summer Pittman spent nine years employed in various sales

positions by Plaintiff ADP, LLC. During that time, she and ADP signed several

restrictive covenants in which she agreed that in the event of her non-

employment by ADP, she would for a period not (1) compete with ADP, (2)

disclose its confidential information, or (3) solicit its clients. In June 2019,

Pittman abruptly left ADP and accepted a position with one of its competitors.

ADP considers this a violation of several provisions of the restrictive covenants

and now moves this Court for entry of an order enjoining Pittman from: (1)

continuing to breach her non-compete obligations; and (2) breaching the other

restrictive covenant obligations owed to ADP. (DE 3).

For the reasons that follow, APD’s motion is GRANTED.

I. BACKGROUND!

A. Pittman’s Employment

ADP employed Pittman for about nine years in various sales positions,

always in the Pacific Northwest. (DE 3-5 4 3) ADP first hired her on February

| Certain key items from the record will be abbreviated as follows:

DE _ = Docket entry number in this case

Compl. = Complaint and jury demand (DE 1)

22, 2010. (id.). On September 12, 2016, the company promoted her to Pacific

Northwest district sales manager in its Global Enterprise Solutions division.

(Id.). Pittman remained in that role until she voluntarily left ADP on June 14,

2019. (id.).

As a district sales manager, Pittman sold ADP’s products and services to

existing and prospective clients. (/d.). Her market and territoria! designation

consisted of companies employing between 1,000 and 10,000 people, in Alaska,

Oregon, Vancouver, and Washington.? (Id. 4 4). In that role, Pittman was

responsible for cultivating, developing, and maintaining business relationships

with existing and prospective clients. (/d.}. She was also charged with

marketing and selling products that provide payroll, time and attendance,

human resources management, and other tools to employers. (id.). These

products included WorkForce Now, Vantage, Global View, and Lifion. (/d.).

However, Pittman primarily sold WorkForce Now. (DE 13-2 4 5). She rarely

attempted to sell other ADP products and even more rarely succeeded. (Id.).

2 While working for ADP, Pittman was not assigned a territory per se. (DE 13-2

4 7). Instead, she was tasked with serving the accounts of specific, designated existing

and prospective clients. {/d.). ADP gave Pittman a database that identified

approximately 80 to 120 existing and prospective clients to which she was assigned to

sell ADP products. (/d.}. Those clients were in Alaska, Oregon, Vancouver, and

Washington. Pittman was not the only ADP salesperson selling to the existing and

prospective clients in Oregon and Washington. (Jd.). There were four other ADP

salespeople servicing accounts in those states. (/d.}. Thus ADP never assigned Pittman

to solicit business from ail client prospects in Oregon and Washington. (/d.). She

recalls that ADP directed her only to solicit two existing or prospective clients in

Alaska and two or three existing or prospective clients in Vancouver. (Id.).

While working for ADP, Pittman did not cold-call existing or prospective clients

who had not been specifically identified on her database. (/d.). In fact, Pittman was

prohibited from selling to existing or prospective clients without prior authorization.

(DE 13-2 4 8). Instead, Pittman’s responsibilities consisted of selling additional

business to existing ADP clients and prospecting for new business from clients on the

same database. (/d.). ADP employed other sales representatives who sold to the same

ADP clients as those assigned to Pittman, but those representatives sold benefit

services, time and attendance solutions, global solutions, recruiting solutions and

health compliance solutions—products and solutions that Pittman did not sell. (DE

13-2 7 9).

After Pittman would close a deal, ADP expected her to move on to the

next deal. (Id.). She was expected not to “waste time getting close to a client.”

(DE 13-2 4 10). Instead, that responsibility was passed on to client relationship

managers, the employees ADP specifically tasked with maintaining those

ongoing relationships. (Jd.).

B. The Nondisclosure Agreement and the Sales Representative

Agreement

On March 1, 2010, when Pittman was hired, she and ADP—as a routine

matter—signed a non-disclosure agreement (“NDA”). 3 (DE 1-1). The NDA is

intended to bind ADP and its new employee before the associate is exposed to

ADP’s confidential business information and other data about ADP’s existing or

prospective clients. (Id. 9). The NDA contains restrictions designed to protect

those confidences and client goodwill, as well as other protectable business

interests. (DE 3-5 4 10). The NDA also contains a return-of-property provision.

(DE 1-1 4 1{a)-(b)).

ADP requires new sales associates to sign the NDA because it wants to

protect the confidential information that sales associates obtain in the course

of their duties. (DE 3-5 | 11). In this manner, ADP hopes to protect the client

relationships and goodwill that sales associates develop during their time at the

company. (fd.).

At the same time, Pittman also signed a Sales Representative Agreement

(“SRA”), which includes non-solicitation, non-disclosure, non-use and non-hire

provisions.

C. ADP’s Training

After Pittman began working for ADP, the company provided her with

specialized training. (DE 3-5 4 17). ADP claims that this training is unique and

unmatched by its industry competitors. (/d.). In the course of training, ADP

provides sales associates like Pittman significant information about ADP and

3 The NDA is a condition of employment for all new ADP sales associates.

(DE 1-1).

its products and services. (Id. J 14). Sales associates also obtain information

about the specific clients they service. (id.). The training information includes

the strengths and weaknesses of ADP’s products and services; the strengths

and weaknesses of other ADP sales associates; the way ADP sells its products

and services; the way ADP differentiates its products and services from its

competitors; the relative advantages and disadvantages between ADP’s

products and services and those of its competitors; the methods by which ADP

effectively competes with its competitors; ADP’s pricing models and costs;

ADP’s planned improvements and expected new products; and complaints

made by ADP customers. (Id.). This information is generally confidential to

ADP, and ADP prohibits its disclosure or use by former employees. (/d.). During

her time at ADP, Pittman gained substantial access to this sort of confidential

information. (id. 4 17). She also had significant and direct contact with ADP’s

existing and prospective clients. (Id. 4 17).

During her time at ADP, Pittman also had access to, and regularly used,

ADP’s confidential, proprietary, and trade secret information. (/d.). This

information included ADP’s confidential business methods; procedures,

pricing, and marketing strategies; client information, including names,

preferences, and needs; and information regarding the terms of client

contracts. (Id.}. ADP attempts to maintain the secrecy of this proprietary

information by requiring employees to sign NDAs; limiting access to proprietary

information on a need-to-know basis; requiring security and password

protection on its work systems; and reminding and training its employees

about the sensitive nature of this information. (Compl. { 21).

D. ADP’s Restricted Stock Award Program and Restrictive

Covenant Agreements.

As an incentive program, ADP offers to certain high-performing

employees the opportunity to participate in a stock-award program. (DE 3-5

12). Under the terms of that program, sales‘employees who meet their sales

targets are annually offered restricted stock in ADP. (/d.). ADP conditions the

receipt of restricted stock awards on the acceptance by eligible sales associates

of restrictive covenants. (Id. | 13). The restricted stock is designed to be a

reward to attract, retain, and motivate ADP employees and to strengthen the

mutual interest between the employees and ADP. (Id. 4 12).

As part of the electronic acceptance process in connection with the award

of stock, ADP requires employees to accept the terms of these restrictive

covenants. (DE 3-8 4 7). An employee is unable to accept an award of restricted

stock without first acknowledging that he or she has read the associated

agreements and has accepted the restrictive covenant agreement. (/d.). This

acceptance scheme is designed to require acceptance or rejection of the entire

agreement associated with the award. (Id. J 11).

E. Terms and Conditions of the RCA

The restrictive covenants associated with the the receipt of restricted

stock are more extensive than those found in the standard NDA. (DE 3-5 4 13).

ADP believes that sales associates who achieve annual sales targets have

demonstrated that they maintain the strongest relationships with ADP’s

existing and prospective clients, best utilize ADP’s marketing strategies and

resources, effectively leverage their knowledge about ADP’s products and

services and unique information about ADP’s existing and prospective clients,

use their external networks, and best trade on ADP’s reputation in the

marketplace. (/d.). Sales associates who receive restricted stock awards are

generally involved with and have the most information about the largest

numbers of ADP’s existing and prospective clients. (Id.).

During their duties, ADP sales associates obtain significant information

about ADP and its products and services and about the specific clients they

service. (id. { 14). Again, this includes the strengths and weaknesses of ADP’s

products and services; the strengths and weaknesses of other ADP sales

associates; the way ADP selis its products and services; the way ADP

differentiates its products and services from its competitors; the relative

advantages and disadvantages between ADP’s products and services and those

of its competitors; the methods by which ADP effectively competes with its

competitors; ADP’s pricing models and costs; ADP’s planned improvements and

expected new products; and complaints made by ADP customers. (/d.). Most of

this information is confidential to ADP and is thus never to be disclosed or

used by former employees. (Jd.).

ADP also recognizes that the loss of a high-performing sales associate to

a competitor poses a particularly high risk to ADP with respect to client and

prospect relationships, ADP’s goodwill, and the use and misappropriation of its

confidential trade secret information relating to its operations, clients and

prospects. (id. | 15).

ADP thus requires more extensive restrictive covenants in exchange for

its restricted stock awards, in recognition of the fact that those high-performing

sales associates—because of their unique knowledge, skills, and job

performance—have the greatest potential to disrupt ADP’s relationships with

its existing and prospective clients, to harm the goodwill ADP has generated in

the market, and to misappropriate confidential and trade secret information

about ADP and its existing and prospective clients. (Id. J 16).

. 1. Non-Solicitation

The RCA imposes on its employee-signatories a greater burden than the

SRA and NDA do, and the RCA’s terms make it more difficult for a former

employee to compete with ADP after he or she leaves the company. The RCA

contains a non-solicitation provision that is stronger than the one found in the

SRA. The RCA’s provision prohibits employees, for one year after their

departure from ADP, from soliciting any clients to whom ADP (1) provides; (2)

has provided; or (3) reasonably expects to provide business within the two-year

period following the employee’s departure.*

Unlike the SRA, which only prohibits solicitation of those ADP clients

with whom the former employees were involved or exposed, the RCA also

4 For clarity, the two-year period following the employee's departure refers to

clients to whom ADP reasonably expects to provide business; the one-year period

following the employee’s departure refers to the (former) employee’s non-solicitation

obligation.

prohibits solicitation of all current and prospective ADP clients. IN addition,

while the SRA prohibits former employees from soliciting ADP’s marketing

partners, the RCA also prohibits former employees from soliciting ADP’s referral

partners.®

2. Non-Compete

The RCA also contains a non-compete provision, which the SRA and the

NDA do not have. The non-compete provides that, for one year after their

departure from ADP, employees may not “participate in any manner with a

Competing Business” in the geographic area where the employee worked or had

contact with ADP clients if working in that area would require the employee to

“provide the same or substantially similar services to a Competing Business as

those which [they] provided to ADP while employed.” The non-compete

provision also prohibits (former) employees from using or disclosing ADP’s

trade secrets or other confidential information.

F. The 2017 Restrictive Covenant Agreement

The 2017 RCA contains the following pertinent provisions:

1. Definitions.

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, that part of the Business of

ADP in which I have worked or to which | 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).

5 Together, ADP defines referral partners and marketing partners as its Business

Partners.

j. “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.

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, finance, 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, or (ii) use, disclose or

disseminate ADP’s Confidential Information or trade secrets.

However, after my voluntary or involuntary termination of my

employment for any reason and with or without cause, nothing

shall prevent me from owning, as an inactive investor, securities of

any competitor of ADP which is listed on a national securities

exchange.

4. Non-Solicitation of and Non-Interference with Clients, Business

Partners, and Vendors.

a. Clients: I agree that during my employment and fora

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 within the United States of America that are the

same as or substantially similar to those provided in the

Business of ADP. I also agree that I will not induce or

encourage or attempt to induce or encourage any Clients to

cease doing business with ADP or materially alter their

business relationship with ADP.

b. Business Partners: 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, | will not, either on

my own behalf or for any Competing Business, directly or

indirectly engage, contract with, solicit, divert, appropriate or

accept any business from, or attempt to engage, contract

with, solicit, divert, appropriate or accept any business from

any Business Partner for the purpose of providing to me or

any Competing Business any product or service within the

United States of America that is (a) the same as or

substantially similar to the product or service provided to

ADP and which ADP uses for, uses for obtaining, or

distributes to, its Clients or (b) specialized, customized or

designed by the Business Partner for ADP. This provision

applies only to a Business Partner: (i) with whom ADP

currently has a commercial or business relationship in

connection with the Business of ADP; (ii) with whom ADP

has had a commercial or business relationship in connection

with the Business of ADP within the one (1) year period prior

to my voluntary or involuntary termination of employment,

for any reason, with or without cause, from ADP; or {iii)

about whom I have any Confidential Information or trade

secret information. I also agree that I will not induce or

encourage or attempt to induce or encourage any Business

Partner to cease doing business with ADP or materially alter

their business relationship with ADP.

c. Vendors: I agree that during my employment and fora

period of twelve (12) months following the voluntary or

involuntary termination of my employment for any reason

and with or without cause, | will not induce or encourage or

attempt to induce or encourage any Vendor to cease doing

business with ADP within the United States of America or

materially alter their business relationship with ADP within

the United States of America.

6. Non-Disclosure and Non-Use of Confidential Information and

Trade Secrets. During my employment, except as authorized and

required to perform my duties for ADP, and after the voluntary or

involuntary termination of my employment for any reason and with

or without cause, I will not access, disclose, use, reproduce,

distribute, or otherwise disseminate ADP’s Confidential

Information or trade secrets or take any action causing, or fail to

take any action necessary in order to prevent, any such

information to lose its character or cease to qualify as Confidential

Information or a trade secret. | agree to inquire with ADP if I have

any questions about whether I am authorized or required to

access, disclose, use, reproduce, distribute, or otherwise

disseminate ADP’s Confidential Information or whether particular

information is Confidential Information or a trade secret before

accessing, using or disclosing such information. I understand,

however, that nothing in this Restrictive Covenant Agreement

prohibits me from reporting possible violations of federal law or

regulation to any governmental agency or entity or from

communicating with any such agency or entity regarding the same.

I also agree to immediately return to ADP all property and

information belonging to ADP such as keys, credit cards,

telephones, tools, equipment, computers, passwords, access codes,

pin numbers, and electronic storage devices, as well as all

originals, copies, or other physical embodiments of ADP’s

Confidential Information or trade secrets (regardless of whether it

is in paper, electronic, or other form), including any such

information in any programs, business forms, manuals,

correspondence, files, databases, or on computer disks or any

other storage medium, including but not limited to cloud storage,

whether or not owned or controlled by me or ADP (e.g., social and

business networking websites, web-based email servers, Notability,

or cloud storage services), immediately upon termination of my

employment or upon any earlier request by ADP, and I agree not to

keep, access, disclose, use, reproduce, distribute, or otherwise

disseminate any copies, electronic or otherwise, of any of the

foregoing. I also understand that my obligations under this

paragraph, as well as the other covenants in this Agreement,

extend to my activities on the internet, including my use of

business oriented social networking sites such as LinkedIn and

Facebook. This shall include deleting any business related

connections or contacts, including all ADP Clients and Business

Partners, that I] inputted in or with whom I connected on any

business oriented social networking sites, my LinkedIn account,

any cloud storage, any electronic device, or any cell phones while

employed at ADP. Pursuant to 18 U.S.C. § 1833(b), and as set forth

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fully therein, notice is hereby given that an individual shall not be

held criminaily or civilly liable under any federal or state trade

secret law for the disclosure of a trade secret that is made in

confidence to a federal, state, or local government official, either

directly or indirectly, or to an attorney, solely for the purpose of

reporting or investigating a suspected violation of law; or is made

in a complaint or other document filed in a lawsuit or other

proceeding, if such filing is made under seal. An individual who

files a lawsuit for retaliation by an employer for reporting a

suspected violation of law may disclose the trade secret to the

attorney of the individual and use the trade secret information in

the court proceeding, if the individual files any document

containing the trade secret under seal and does not disclose the

trade secret, except pursuant to court order.

7. Prior Agreements and Disclosure of Agreement to Third Parties. |

represent that I am not a party to any agreement with any former

employer or any other person or entity containing any

nondisclosure, non-compete, non-solicitation, non-recruitment,

intellectual property assignment, or other covenants that will affect

my ability to devote my full time and attention to the Business of

ADP that has not already been disclosed to ADP in writing. I also

agree to provide a copy of this Agreement to any subsequent

employer, person, or entity to which J intend to provide services

that may conflict with any of my obligations in this Agreement

prior to engaging in any such activities and to provide ADP in

writing the name and address of any such employer, person, or

entity and a description of the services I intend to provide prior to

engaging in any such activities. I agree that ADP may also provide

a copy of this Agreement or a description of its terms to any Client,

subsequent employer, or other third party at any time as it deems

necessary to protect its interests, and I agree to indemnify ADP

against any claims and hold ADP harmless from any losses, costs,

attorneys’ fees, expenses, fees, and damages arising out of my

failure to comply with this paragraph or ADP’s providing a copy of

this Agreement or a description of its terms to any Client,

subsequent employer, or other third party.

9. Choice of Law, Venue, and Jurisdiction. The interpretation,

validity, and enforcement of this Agreement will be governed by the

laws of the State of New Jersey, without regard to any conflicts of

11

law principles that require the application of the law of another

jurisdiction. I agree that any action by me to challenge the

enforceability of this Agreement must be brought or litigated

exclusively in the appropriate state or federal court located in the

State of New Jersey. I also agree that any action by ADP to enforce

this Agreement, as well as any related disputes or litigation related

to this Agreement, may, but do not have to, be brought in the

appropriate state or federal court located in the State of New

Jersey. I agree and consent to the personal jurisdiction and venue

of the federal or state courts of New Jersey for resolution of any

disputes or litigation arising under or in connection with this

Agreement or any challenge to this Agreement and waive any

objections or defenses to personal jurisdiction or venue in any

such proceeding before any such court.

11. Relief, Remedies, and Enforcement. 1 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 goodwill and client

relations, Confidential Information and trade secrets, and the

specialized skills and knowledge gained by me and ADP’s other

employees during our employment. I acknowledge and agree that a

breach of any provision of this Agreement by me will cause serious

and irreparable damage to ADP that will be difficult to quantify and

for which a remedy at law for monetary damages alone may not be

adequate. Accordingly, I agree that if ADP should bring an action

to enforce its rights under this Agreement and ADP establishes

that I have breached or threatened to breach any of my obligations

under this Agreement, ADP shall be entitled, in addition to all

remedies otherwise available in law or in equity, to a temporary

restraining order, a preliminary injunction, and a permanent

injunction enjoining such breach or threatened breach in any

court of competent jurisdiction without the necessity of posting a

surety bond, as well as an equitable accounting of all profits or

benefits arising out of any violation of this Agreement. | also agree

that nothing in this Agreement shall be construed to prohibit ADP

from pursuing any and all other legal or equitable remedies

available to it for breach of any of the provisions of this Agreement,

including the disgorgement of any profits, bonuses, commissions,

12

or fees realized by me, any subsequent employers, any business

owned or operated by me or to which I provide services, or any of □□

my agents, heirs, or assigns. I also agree that that the knowledge,

skills, and abilities | possess at the time of commencement of my

employment are sufficient to permit me to earn a livelihood

satisfactory to me without violating any provision of paragraphs

three (3) through seven (7) above, for example, by using such

knowledge, skills, and abilities, or some of them, in the service of

business that is not competitive with ADP. I further agree to pay

any and all legal fees, including without limitation, all attorneys’

fees, court costs, and any other related fees and/or costs incurred

by ADP in enforcing this Agreement.

12. Tolling. The restricted time periods in paragraphs three (3)

through six (6) above shall be tolled during any time period that |

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.

15. Electronic Signature. I agree that ADP may enforce this

Agreement with a copy for which | have provided an electronic

signature.

19. Opportunity to Review. I agree that I have read this Agreement

before signing it, understand its terms, and that I have had the

opportunity to have legal counsel review this agreement, prior to

signing it, and 1 acknowledge that I have not been forced or coerced

in any manner to sign this Agreement and do so of my own free

will.

(DE 3-8).

G. Pittman’s Acceptance

ADP offered, and Pittman accepted, a restricted stock award on three

separate occasions: September 19, 2012; September 2, 2014; and September 1,

2017. (DE 3-8 fj 5, 14 & 15). In each instance Pittman agreed to an RCA in

13

exchange for an award of ADP restricted stock. (/d. ] 14-16). Each RCA

contained non-competition, non-solicitation, non-disclosure, and non-use

restrictive covenants.

H. Pittman’s Association with Ultimate

Pittman left ADP on June 14, 2019 and accepted a position with Ultimate

Software Group (“Ultimate”) shortly thereafter. (DE 3-5 | 6; Compl. {] 32-35)).

At Ultimate, Pittman holds the title “Business Development Manager.” (DE 13-2

4| 16). In that position, she solicits business from approximately 115

specifically identified prospective clients that each have more than 2,500

employees. (Id.). Ultimate assigned each client to Pittman by way of a database

it provided to her. (/d.). At Ultimate, Pittman’s designated clients are located in

Alaska, Hawaii, Idaho, Montana, Oregon, and Washington. (/d.). Pittman claims

that none of her former ADP clients or prospective clients appear on her

Ultimate database. (Id.).

ADP and Ultimate are direct competitors. (Comp!. 4 35}. Ultimate’s

UltiPro product directly competes with an ADP product called Workforce Now.

(Compl. 4 35). Unlike ADP, however, Ultimate sells UltiPro as a bundled

product/service that includes payroll, human resource, and talent

management products and services. (DE 13-2 □ 13-15}. As a result, the cost to

clients of UltiPro is nearly always greater than the cost resulting from a client’s

selection among the unbundled products and services provided by ADP. (/d.).

ADP contends that Pittman’s position at Ultimate is expressly forbidden

by the non-compete provisions of the RCA. (Compl. 37). ADP further alleges

that because Pittman performs on behalf of Ultimate the same job functions as

those she performed for ADP in the same sales territory, it is inevitable that she

has already or at some point will have used or disclosed ADP’s proprietary

information for the benefit of Ultimate and to the detriment of ADP. (Jd. 39).

Pittman claims that since she joined Ultimate, she has not solicited any

of ADP’s existing or prospective clients with whom she had any contact or

communications while she was worked at by ADP. (DE 13-2 { 16). She also

14

claims not to have solicited any firms whose names appeared on my ADP

database. (Id.).

I. ADP Moves to Enjoin Pittman’s Employment

On August 1, 2019, ADP filed a complaint for injunctive relief, (DE 1),

and moved for a temporary restraining order, (DE 3). On October 1, the Court

held a show-cause hearing as to why an order should not be entered

preliminarily enjoining Pittman from competing with ADP in violation of her

agreements. (DE 19). The hearing consisted solely of legal argument based on

the parties’ submissions; neither side sought to introduce live testimony.

Il. APPLICABLE STANDARDS

A. Federal Preliminary Injunction Factors

The standards governing grant or denial of a preliminary injunction in

this court are a matter of federal procedural law. “A plaintiff seeking a

preliminary injunction must establish (1) that he is likely to succeed on the

merits, (2) that he is likely to suffer irreparable harm in the absence of

preliminary relief, (3) that the balance of equities tips in his favor, and (4) that

an injunction is in the public interest.” Winter v. Natural Res. Def. Council, Inc.,

555 U.S. 7, 20 (2008) (numbering added); accord Am. Express Travel Related

Servs., Inc. v. Sidamon-Eristoff, 669 F.3d 359, 366 (3d Cir. 2012), Because a

preliminary injunction is “an extraordinary and drastic remedy,” the plaintiff

must establish each element by a “clear showing.” Mazurek v. Armstrong, 520

U.S. 968, 972 (1997) (quoting 11A C. Wright, A. Miller, & M. Kane, Federal

Practice and Procedure § 2948, at 129-30 (2d ed. 1995)). Even then, a trial

court’s decision to issue a preliminary injunction is “an act of equitable

discretion.” eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006).7

A Court will consider all four factors, but the first two are essential. See

Adams v. Freedom Forge Corp., 204 F.3d 475, 484 (3d Cir. 2000); accord

Hoxworth v. Blinder, Robinson & Co., 903 F.2d 186, 197 (3d Cir, 1990) (placing

particular weight on the probability of irreparable harm and the likelihood of

success on the merits, stating: “[W]e cannot sustain a preliminary injunction

Pg.

15

ordered by the district court where either or both of these prerequisites are

absent.” (quoting In re Arthur Treacher’s Franchisee Litig., 689 F.2d 1137, 1143

(3d Cir. 1982))); Morton v. Beyer, 822 F.2d 364, 367 (3d Cir. 1987); Freixenet,

S.A. v. Admiral Wine & Liquor Co., 731 F.2d 148, 151 (3d Cir. 1984); Am.

Express, 669 F.3d at 366, 374. But see Conestoga Wood Specialties Corp. v.

Sec’y of U.S. Dep’t of Health & Human Services, 724 F.3d 377 (3d Cir. 2013)

(debating whether there is a “sliding scale” of the four factors).

B. State Substantive Law

The substantive rule of decision in this diversity case is New Jersey state

law. This Court's “role in diversity cases is to apply state law as announced by

the state's highest court.” LaBarre v. Bristol-Myers Squibb Co., 544 F. App'x

120, 125 (3d Cir. 2013) (citing Sheridan v. NGK Metals Corp., 609 F.3d 239,

253 (3d Cir. 2010) (“A federal court under Erie [R.R. v. Tompkins, 304 U.S. 64,

78, 58 S. Ct. 817 (1938)] is bound to follow state law as announced by the

highest state court.” (internal citations omitted)). “In the absence ofa

controlling decision by the [state] Supreme Court, we must predict how it

would decide the questions of law presented in this case.” Wolfe v. Allstate

Prop., & Cas. Ins. Co., 790 F.3d 487, 492 (3d Cir. 2015) (citing Berrier v.

Simplicity Mfg., Inc., 563 F.3d 38, 45-46 (3d Cir. 2009)); Travelers Indem. Co. v.

Dammann & Co., 594 F.3d 238, 244 (3d Cir.2010); New Castle County DE v.

National Union Fire Ins. Co. of Pittsburgh, PA, 243 F.3d 744, 749 (3d Cir. 2001).

A federal district court in that position should consider “relevant state

precedents, analogous decisions, considered dicta, scholarly works, and any

other reliable data tending convincingly to show how the highest court in the

state would decide the issue at hand.” Berrier, 563 F.3d at 46 (quotation and

citation omitted).°

6 A difficult issue of interpretation arises where a Court of Appeals’ prediction of

state law has been undermined by subsequent state authority. Must the district court

continue to follow the Court of Appeals’ interpretation, or can it take later state court

authority into account? Does the answer depend on whether the intervening authority

is a decision of the State’s highest court? Compare In re Swinton, 287 B.R. 634, 636

(W.D. Pa. 2003) (district court may consider intervening developments in state law),

16

Ill, RAFFERTY AND KUSINS

Although I do not have the benefit of a decision on point by the New

Jersey Supreme Court, I do not write on a clean slate. Many decisions, both

state and federal, have interpreted the very ADP agreements at issue here. All

have analyzed them in light of the so-called Solari factors: whether the

restriction

[1] is reasonably necessary to protect [an employer’s] legitimate

interests,

[2] will cause no undue hardship on the defendant, and

[3] will not impair the public interest.

Solari Industries, Inc. v. Malady, 55 N.J. 571, 576 (1970) (numbering and line

breaks added for clarity).

Two recent cases in particular structure the Court’s analysis: ADP, LLC v.

Rafferty, 923 F.3d 113 (2019), and ADP, LLC v. Kusins, __ N.J. Super __, No.

A-0692-17T3, 2019 WL 3367212 at *22 (App. Div. July 26, 2019). Rafferty,

reversing a considerable body of district court case law, held that the RCA

“second-tier” restrictions were enforceable, and remanded so that the district

courts could apply its holding to the facts of individual cases. Kusins, decided

after Rafferty, endorsed its reasoning and applied it to the facts of the cases

before it, involving six departing ADP employees. The task now before me is

similar to that performed by the Kusins court. Because Rafferty sets forth the

applicable standard, and because Kusins is the highest state court decision

applying that standard, it is worth discussing those two cases at some length.

with Itzkoff v. F & G Realty of N.J., Corp., 890 F. Supp. 351 (D.N.J. 1995) (district court

continues to be bound by Court of Appeals ruling); Heindel v. Pfizer, Inc., 381 F. Supp.

2d 364, 385 (D.N.J. 2004) (citing Itzkoff and holding that “[t]his Court is bound by the

Third Circuit's prediction of Pennsylvania law.”); Jackson v, Louisville Ladder, Inc., No.

11-1527, 2014 WL 460849, at *2 (M.D. Pa. Feb. 5, 2014) (“Once the United States

Court of Appeals for the Third Circuit predicts how a state’s highest court would

resolve an issue, district courts within the circuit are bound by this prediction ‘unless

the state supreme court issues a contrary decision or it appears from a subsequent

decision of the appellate courts that the court of appeals erred.”), aff'd, 586 F. App’x

882 (3d Cir. 2014). No such issue is presented here, however.

17

A. The Third Circuit’s Rafferty Decision

On April 26, 2019, the Third Circuit filed a precedential opinion in ADP,

LLC v. Rafferty, 923 F.3d 113 (2019). Rafferty was an appeal from other cases

in this district involving the same ADP restrictive covenant agreements. There,

two district courts deciding applications for preliminary injunctions had

enforced the NDA and SRA but declined to enforce the RCA. The Court of

Appeals reversed as to the RCA and remanded.’ Because Rafferty sets forth the

Third Circuit’s view of the governing legal standards under New Jersey state

law, I quote it at length.

Rafferty first laid out well-established principles of New Jersey law

regarding the legitimate scope of restrictive employment covenants and the

nearly universal practice of judicial “blue penciling” of such covenants to bring

them within acceptable bounds:

For more than a century, New Jersey has upheld restrictive

covenants in employment agreements, see Sternberg v. O’Brien, 48

N.J. Eq. 370, 22 A. 348, 349-50 (1891); Mandeville v. Harman, 42

N.J. Eq. 185, 7 A. 37, 41 (1886), but the state initially applied an

inflexible rule rendering overbroad covenants completely

unenforceable, Althen v. Vreeland, 36 A. 479, 481 (N.J. Ch. 1897)

(reasoning that a restrictive covenant “if enforced at all, it must be

enforced according to its terms”)....

In its seminal decision in Solari Industnes, Inc. v. Malady, 55 N.J.

571, 264 A.2d 53 (1970), the New Jersey Supreme Court jettisoned

the complete-invalidation rule, permitting the partial enforcement

of restrictive covenants where consistent with public policy. See

264 A.2d at 61. Under its prior approach, the New Jersey Supreme

Court recognized, courts struck down restrictive covenants even

when “justice and equity seemed to cry out for the issuance of

appropriately limited restraints.” Jd. at 60. That is, employers may

“act in full good faith” only to “find that the terms of the

? Before Rafferty was decided, in ADP, LLC v. Trueira, 18-3666, 2018 WL

3756951 (D.N.J. Aug. 8, 2018), I followed the lead of those earlier district court

decisions and enforced the NDA and SRA, while declining to enforce the RCA. After

vacating and remanding those district court decisions in Rafferty, the Court of Appeals

entered a separate order vacating and remanding Trveira for further proceedings. My

decision on remand in Trueira is filed simultaneously herewith.

18

noncompetitive agreement are later judicially viewed as

unnecessarily broad.” Id. at 56. Under these circumstances, Solari

recognized that tailoring overbroad restrictive covenants better

accorded with the parties’ written agreement than wholesale

invalidation. See id. In other instances, the complete-invalidation

rule encouraged courts to fully enforce “sweeping noncompetitive

agreements” where, if given a choice, “they would have cut them

down to satisfy the particular needs at hand.” /d. at 60. Under the

new approach, while an employer that “extracts a deliberately

unreasonable and oppressive noncompetitive covenant” should

receive no benefit, courts should partially enforce an overbroad

covenant as long as it is “[1] reasonably necessary to protect [an

employer's] legitimate interests, [2] will cause no undue hardship

on the defendant, and [3] will not impair the public interest.” Jd. at

36, 61.

Following Solari, New Jersey courts have strived, if possible, to

salvage restrictive covenants, construing the opinion’s three-part

test as rarely justifying the total invalidation of a restrictive

covenant. See, e.g., Coskey’s Television & Radio Sales & Serv., Inc.

vy. Foti, 253 N.J. Super. 626, 602 A.2d 789, 793, 796 (App. Div.

1992) (blue penciling a restrictive covenant that had “devastating

effects” on the employee and “only limited” effects on the employer

to permit “substantially narrower enforcement”). As to what

business interests qualify as “legitimate,” Solari, 264 A.2d at 61, an

“employer has no legitimate interest in preventing competition as

such” or simply prohibiting an employee from exercising her

“general knowledge” within the industry, Whitmyer Bros., Inc. v.

Doyle, 58 N.J. 25, 274 A.2d 577, 581 (N.J. 1971); see Ingersoll-

Rand Co. v. Ciavatta, 110 N.J. 609, 542 A.2d 879, 892-93 (1988).

But New Jersey courts have stressed that employers have “patently

legitimate” interests in their trade secrets, confidential business

information, and customer relationships. Whitmyer Bros., 274 A.2d

at 581; Cmty. Hosp. Grp., 869 A.2d at 897. As long as the

restrictive covenant reasonably protects one of these matters, the

employer has adduced a “strong” business interest. Ingersoll-Rand,

542 A.2d at 892.

Most relevant here, in A. T. Hudson & Co., Ine. v. Donovan, 216

N.J. Super. 426, 524 A.2d 412 (App. Div. 1987), the Appellate

Division enforced a management consulting firm’s restrictive

covenant to protect its former employee’s client relationships. Id. at

19

416. The restrictive covenant, the court recognized, safeguarded

the “significant investment of time, effort and money” the

consulting firm expended “soliciting clients and developing projects

for their benefit.” Id. A restrictive covenant protects this

substantial investment in a discrete set of clients, especially for

employees who maintained close, continual contact with the

employer’s business partners. See id. at 413-14, 416; Coskey’s,

602 A.2d at 795.

If a restrictive covenant reaches beyond an employer’s legitimate

interests, courts applying New Jersey law have typically resorted to

blue penciling to fulfill the contract’s lawful ends. See Coskey’s,

602 A.2d at 796. For instance, where a restrictive covenant covers

products for which no trade secrets existed, courts have blue

penciled the agreement to extricate them. See, e.g., Raven v. A.

Klein & Co. Ine., 195 N.J. Super. 209, 478 A.2d 1208, 1211-12

(App. Div. 1984); see also Saccomanno v. Honeywell Int'l, Inc., 2010

WL 1329038 at *5 (N.J. Super. Ct. App. Div. Apr. 7, 2010) (limiting

an agreement covering all “information” to just “trade secrets or

confidential information”). Or, if a restrictive covenant seeks to

protect client relationships, courts have narrowed the covenant to

clients with which the employee interfaced. See, e.g., Saturn

Wireless Consulting, LLC v. Aversa, No. 17-1637, 2017 WL

1538157 at *12 (D.N.J. Apr. 26, 2017).

The other two Solari factors—undue hardship and the public

interest—likewise rarely favor the complete nullification of a

restrictive covenant. The second Solari factor’s focus on undue

hardship lends itself to blue penciling, not complete invalidation.

Seldom could an employee credibly contend that, even where an

employer has proffered a legitimate business purpose, any

enforcement of a restrictive covenant would pose an undue

burden. See Ingersoll-Rand, 542 A.2d at 892 (a court must balance

the employer’s interest against the hardship inflicted). And under

the “public interest” factor, New Jersey has recognized only two

professions for which a client’s freedom to choose or the “uniquely

personal” nature of the relationship militate against enforcing any

restrictive covenant. Comprehensive Psychology Sys., P.C. v. Prince,

375 N.J. Super. 273, 867 A.2d 1187, 1190 (App. Div. 2005)

(psychologists); see Jacob v. Norris, McLaughlin & Marcus, 128 N.J.

10, 607 A.2d 142, 151 (1992) (attorneys); Cmty. Hosp. Grp., 869

A.2d at 895 (noting that “[e]xcept for attorneys and ...

20

psychologists, our courts have consistently utilized a

reasonableness test to determine the enforceability of restrictive

covenants” (internal citations omitted)).

Simply put, New Jersey accepts that “non-compete agreements are

a common part of commercial employment,” and its Solari

framework “recognizes that noncompete agreements can serve a

useful purpose so long as the agreement is not unreasonable.”

Maw, 846 A.2d at 609. To ensure that such agreements remain

reasonable, New Jersey courts do not hesitate to blue pencil a

covenant but will rarely invalidate one in full. See, e.g., Cmty.

Hosp. Grp., 869 A.2d at 899-900.

Rafferty, 923 F.3d at 120-22.

Rafferty accepted the parties’ mutual position that the first-tier

restrictions contained in the SRA and NDA, which applied to all employees,

were reasonable. It then considered whether an employer could reasonably

impose more onerous “second-tier” restrictions, like the RCA here, on a small

group of high-performing employees.

The departure of such high-performing employees, the Court held, may

implicate especially weighty employer interests:

The preservation of client relationships and the goodwill they

generate are among the business interests that New Jersey courts

consistently recognize as legitimate and worthy of protection. See

Whitmyer, 274 A.2d at 581; A.T. Hudson & Co., 524 A.2d at 415.

As aclient services business, ADP’s viability depends on its ability

to attract—and retain—its clients. And by setting sales goals for its

employees and identifying the subset of employees that meet or

exceed those goals, ADP has the ability to empirically measure

which of its employees have more extensive client contact.

Employees can achieve this more extensive client contact in one of

two ways—by virtue of selling to a greater number of customers or

by selling more products to a smaller number of customers. Either

way, post-termination competition from those employees or their

solicitation of ADP’s clients and Business Partners would pose a

greater threat to ADP’s business than would that of employees who

failed to meet their sales goals and thus, necessarily, have less

contact with ADP’s clients. ADP therefore has a legitimate business

interest in imposing the RCA on this subset of employees, and the

21

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.

Rafferty, 923 F.3d at 123.

Rafferty therefore held that such second-tier restrictions served

legitimate employer interests and could not be considered unreasonable per se.

It rejected Laidlaw, Inc. v. Student Transp. of America, Inc., 20 F. Supp. 2d 727

(D.N.J. 1998), which held that a second-tier restrictive covenant tied to a stock-

option award was an unenforceable because its “primary purpose” was “to buy

out potential competition.” See Rafferty, 923 F.3d at 123.

Next, Rafferty considered the RCA in relation to the second Solari factor,

hardship to the employee. Surveying prior cases, it noted that some had

confined the RCA’s non-solicitation provision to include only customers that

the employee had learned of through employment at ADP, as opposed to all

ADP customers. Others had confined the non-compete to encompass only a

particular territory, or a particular market segment of customers (such as

those with fewer than fifty employees). 923 F.3d at 126. While indicating that

some blue penciling would be appropriate (as ADP had conceded), the Court of

Appeals remanded for consideration of “facts relevant to the extent of the

hardship Appellees will suffer if the RCA is enforced, including whether it

would preclude the employee from being able to earn a living in his or her

occupation, and the fact that both Appellees voluntarily resigned from ADP and

chose to immediately join Ultimate, a direct competitor, thereby arguably

br[inging] any hardship upon [themselves].” Id. (internal citations and

quotations omitted).

The final Solari factor of “harm to the public” carried no particular

weight. Rafferty noted that this dispute occurred in an ordinary commercial

context with no special public component. Thus, the first two Solari factors

sufficed to balance the relative interests of ADP and the employees. Id. at 127.

On May 28, 2018, the Court of Appeals denied the defendants’ petition

for a panel rehearing or review en banc.

22

B. The Appellate Division’s Kusins Decision

ADP, LLC v. Kusins, __ N.J. Super __, No. A-0692-17T3, 2019 WL

3367212 (App. Div. July 26, 2019), is the highest state court decision

interpreting the ADP agreements, particularly post-Rafferty.

“In the absence of guidance from the state’s highest court, we are to

consider decisions of the state’s intermediate appellate courts for assistance in

predicting how the state’s highest court would rule.” Downs v. U.S. Pipe &

Foundry Co., 441 F. Supp. 2d 661, 663 (D.N.J. 2006) (quoting Gares v.

Willingboro Twp., 90 F.3d 720, 725 (3d Cir. 1996)). “The rulings of intermediate

appellate courts must be accorded significant weight and should not be

disregarded absent persuasive indication that the highest court would rule

otherwise.” U.S. Underwriters Ins. Co. v. Liberty Mut. Ins. Co., 80 F.3d 90, 93

(3d Cir. 1996).

In Kusins, the Superior Court of New Jersey, Appellate Division,

interpreted ADP’s RCA agreements in relation to six departing employees. 2019

WL 3367212 at *22 (App. Div. July 26, 2019). All six had executed RCAs

substantially similar to the one at issue here, had left ADP, and had gone to

work for competing firms, including Ultimate. 2019 WL 3367212 at *1. Kusins

approvingly cited and followed Rafferty, applying its reasoning to the facts of

the six cases before it. In a sense, then, Kusins performed the post-Rafferty

task that is now before this Court, and in doing so pointed the way to this

Court’s decision.

Kusins first surveyed existing New Jersey case law in terms substantially

similar to the Rafferty analysis, supra. It then approvingly cited the holdings of

Rafferty:

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 had “a legitimate business

interest in imposing the RCA on [its successful salespeople], and

the RCA’s heightened restrictive covenants, over and above those

23

in the SRA and NDA, are reflective of the greater damage those

employees could inflict on ADP upon their departure.” Jd. at 123,

We agree.

Kusins, 2019 WL 3367212 at *15.

Like Rafferty, Kusins found that the departure of certain high-performing

employees posed a particularly acute threat to ADP’s legitimate interest in its

relations with its customers. Thus, ADP could reasonably require additional

second-tier restrictions in connection with rewarding those employees’

performance. Id. at *15-16.8

Kusins then turned to the counterbalancing factor of hardship to the

employees—essentially, the subject of the remand in Rafferty. Some hardship,

of course, was inevitable; the question was whether any such hardship was

undue in light of ADP’s legitimate interests. The non-solicitation and non-

compete provisions of the RCA were found to impose an undue hardship and

were therefore blue penciled in the following fashion.

& Recall that those additional restrictions, as relevant here, are as follows:

The RCA’s non-compete provision provides that for a one-year period after their

departure from ADP, employees may not “participate in any manner with a Competing

Business” in the geographic area where the employee worked or had contact with ADP

clients if working in that area would require the employee to “provide the same or

substantially similar services to a Competing Business as those which [they] provided

to ADP while employed.”

The non-solicitation provision of the RCA prohibits employees—for one year

after their departure from ADP—from soliciting any clients to whom ADP (1) provides;

(2) has provided; or (3) reasonably expects to provide business within the two-year

period following the employee’s departure.

The RCA also prohibits employees from using or disclosing ADP’s trade secrets

or other confidential information.

9 Taking up the hint in Rafferty, Kusins rejected any claim of hardship based on

termination, because the departing employees had left voluntarily:

We also note that because defendants all voluntarily left ADP to join a

direct competitor [Ultimate], they cannot assert their termination as a

hardship for our consideration. See More, 183 N.J. at 59, 869 A.2d 884

(“If the employee terminates the relationship, the court is less likely to

24

Restrictions as to clients with which employee was involved, The

employees, Kusins noted, could hardly function at all without approaching any

of ADP’s 620,000 customers, prospective clients, or businesses with which ADP

could expect to do business within two years. Kusins therefore narrowed the

non-solicitation and non-compete clauses, “conclud[ing] 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.” Id. at

*17 (citing ADP’s concession regarding non-solicitation clause in Rafferty).

Geographical restrictions and restrictions as to market segment. Kusins,

citing geographical limitations upheld in other cases, only briefly discussed the

validity of the RCA’s geographical limitation because parties did not dispute it.

Id. at 17. In some of the cases under review, the trial court had “loosened the

covenant’s restriction by blue-penciling the geographical limitation in these

clauses to also inchide a market segment.” Id.

The only market-segment restriction proposed was based on the size of

the customer, measured in number of employees. The Kusins court declined to

impose such a restriction:

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.

Id.

Kusins was not quite explicit as to whether “competition,” for purposes of

the non-compete clause, is (like the non-solicitation clause) confined to certain

actual or prospective clients of ADP. Much of the confusion arises from

find undue hardship as the employee put himself or herself in the

position of bringing the restriction into play.”).

2019 WL 3367212 at *17.

25

statements in the opinion that refer to the “RCA” generally or fail to distinguish

between non-compete and non-solicitation clauses. Thus, the opinion states

“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.” 2019 WL 3367212 at *17 (emphasis added).!° The

surrounding context of that statement, however, was a discussion of

“hardship” limitations on the non-solicitation clause; I do not believe that this

stray reference was intended to imply that a non-compete clause could not

impose different restrictions.!!

10 In similar fashion, the discussion (but not the holding) of Kusins elsewhere

appears to conflate the non-compete and non-solicitation clauses. See, e.g., 2019 WL

3367212 at *8 (stating that “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”).

This sentence may have been intended as a shorthand reference to the

combined effect of the two clauses. Nevertheless, the territorial restriction referred to

is contained in the non-compete clause, not the non-solicitation clause. The Kusins

court did not misapprehend this; deciding one of the six consolidated appeals, it

clearly stated the following:

It is of no 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.

Id. at *19.

To be clear, I do not give effect to any dicta in Kusins that appear to lump the

two clauses. The Rafferty decision, which Kusins was citing and interpreting, did not

do so. See Rafferty, 923 F.3d at 126 (noting cases that had restricted the non-

solicitation clause to ADP customers, or restricted the non-compete clause toa

geographic area or market share). And indeed, the Kusins case’s definitive statement of

its holding, quoted at page 27, infra, did not contain any such imprecision. See id. at

*21.

i The more restrictive interpretation is also in some tension with the

fundamental rationale of Rafferty: that ADP was entitled, in exchange for additional

consideration, to impose additional and further restrictions on high-performing

employees. To limit the RCA’s non-compete clause in this manner would render it not

quite, but nearly, superfluous; the SRA, in particular, already prohibits all ex-

employees from having actual or attempted contact or communication of any kind

26

Here I am guided by the closing passage of the Kusins opinion, in which

the Appellate Division definitively stated its holding:

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.

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.”

Id. at *21 (emphasis added) (quoting Cmty. Hosp., 183 N.J. at 58-59).

« This, in my view, constitutes a clear statement that the non-solicitation

clause is limited to certain actual and prospective ADP clients, without respect

to geography; the non-compete clause, on the other hand, encompasses a

broader class of customers but is limited geographically. Both, of course, are

temporally limited to a term of one year.

IV. APPLICATION OF PRELIMINARY INJUNCTION FACTORS

ADP argues that the four preliminary injunction factors weigh in its favor

and asks the Court to enjoin Pittman from: working for Ultimate or any

competitor in Alaska, Oregon, Vancouver, and Washington for twelve months;

violating the RCA; using or disclosing confidential information, or trade secrets,

interfering with any contract, client relationship, prospective client

relationship, or marketing partner relationship; and breaching any loyalty

with “clients, bona fide prospective clients or marketing partners of businesses of the

Company with which the Employee was involved or exposed.” (SRA { 4, quoted above}

27

obligation to ADP. Pittman maintains that ADP has not met its burden and that

injunctive relief is not merited.

The enforceability of the NDA and SRA does not appear to be contested at

this point. Realistically, the dispute here is over the scope and enforceability of

the additional restrictions contained in the RCA.

1. Likelihood of Success on the Merits

On a motion for a preliminary injunction, ADP must demonstrate its

likelihood of success on the merits. See SK & F. Co. v. Premo Pharm. Labs., Inc.,

625 F.2d 1055, 1066 (3d Cir. 1980). That is, ADP need only establish “a

reasonable probability, not the certainty, of success on the merits.” Id.

ADP takes the position that Pittman’s conduct violates the RCA. Pittman

insists it does not, noting that ADP cannot point to a single client she has

taken from her former employer. However, this argument misstates both the

scope of the RCA and relevant case law. In light of the recent decisions by the

Third Circuit and the Appellate Division that hold that ADP’s non-compete

agreement is enforceable—though potentially overbroad—ADP is likely, under

Solari, to prevail on the merits of this action.

(a) Legitimate Business Interest

Preservation of client relationships is a legitimate business interest that

is worthy of protection. See Whitmyer, 58 N.J. at 33; A.T. Hudson & Co., 82

N.J. Super. at 508. ADP depends on its ability to attract and retain clients.

Both Rafferty and Kusins have identified ADP’s “legitimate and protectable

interest in its customer relationships sufficient to justify enforcement of its

RCA.” Kusins, 2019 WL 3367212 at *16.

By setting goals for its employees and identifying those who meet them,

ADP can identify the employee-sources of the most client contact. To increase

client contact, an employee can either (1} sell to a greater number of customers

or (2) sell more products to an existing customer base. Either represents an

increase in revenue if the employee is selling on behalf of ADP, and either

represents a decrease in revenue if the employee is selling on behalf of a

28

competitor. Thus, ADP has a legitimate business interest in imposing the RCA

restrictions on its best-performing employees, who have been commensurately

rewarded with a stock bonus. The increased burden of the RCA reflects the

greater danger those employees pose if they were to leave ADP for a competitor.

Here, Pittman has accepted a position with Ultimate, a direct competitor.

That new position carries responsibilities that are substantially similar to those

she had at ADP. AT Ultimate, Pittman sells substantially similar and

overlapping products and services. Finally, she sells in some of the same

territories in which she worked when at ADP.

It is difficult to imagine that Pittman would not gain an advantage over

ADP simply by having been a party to its trade secrets and confidential

information. The resulting diversion of business from ADP, whether inadvertent

or intentional, necessarily harms the firm. With the benefit of the intervening

authority of Kusins and Rafferty, | find that ADP’s imposition of the RCA to

limit the spread of its trade secrets and confidential information, and to

otherwise limit the damages arising from turnover of some of its most effective

employees, is a reasonable means of furthering a legitimate business purpose.

(b) Tailoring and Burden

Under New Jersey’s Solari test, even where a covenant serves legitimate

business interests, “it may be limited in its application concerning its

geographical area, its period of enforceability, and its scope of activity” so that

those interests are not outweighed by the hardship the covenant inflicts on the

employee. Coskey’s, 235 N.J. Super at 635 (citations omitted). To determine

the degree, if any, to which the RCA must be blue penciled, the Court must

“balance the employer’s need for protection and the hardship on the employee

that may result.” Ingersoll-Rand, 110 N.J. at 635.

The RCA’s non-compete provision provides that for a one-year period

after their departure from ADP, employees may not “participate in any manner

with a Competing Business” in the geographic area where the employee worked

or had contact with ADP clients if working in that area would require the

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employee to “provide the same or substantially similar services to a Competing

Business as those which [they] provided to ADP while employed.” The non-

compete provision also prohibits (former) employees from using or disclosing

ADP’s trade secrets or other confidential information.

To enforce the RCA would sure impose some burden on Pittman and

other former ADP employees who move laterally to positions with competing

firms. “The question remains, however, whether this hardship [is] ‘undue,’

when balanced against the legitimate interest of the employer.” Coskey’s, 235

N.J. Super at 636. Kusins, analyzing the RCA, picked up on the suggestion of

the Third Circuit in Rafferty that the RCA, while potentially overbroad, is

enforceable as modified.

Kusins held that, after blue-penciling, the non-solicitation and non-

compete clauses would prohibit the following:

The direct or indirect solicitation of ADP’s actual clients defendants

had substantial dealings with, or knowledge of, while at ADP.

The direct or indirect solicitation of ADP’s prospective clients that a

former employee gained knowledge of during [her] employment at

ADP.

Competition with ADP within the geographical limits of the non-

compete clause, not confined to any market segment.

2019 WL 3367212 at *21.

I agree with Kusins’ implementation and application of the holdings of

Rafferty. Moreover, I defer to Kusins, an on-point decision of the State’s

intermediate appellate court, because it is the most authoritative indicator of

how the New Jersey Supreme Court would view the ADP agreements. See

Section III.B, supra, and cases cited.

The non-solicitation clause, as blue penciled by Kusins, is not very

controversial. The Kusins court determined that the blue penciled non-

solicitation portion of the RCA should operate to (1) prohibit the direct or

indirect solicitation of ADP’s actual clients with whom the employee dealt

substantially while at ADP or of whose identity the employee learned during his

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or her employment at ADP; and (2) prevent the direct or indirect solicitation of

ADP’s prospective clients of whose identity the employee learned during his or

her employment at ADP.

Pittman has much to say, however, about the non-compete and the

geographical and market-segment limitations. She argues that the relevant

geographic territory should be based on ZIP codes. And she contends that the

relevant market segment should be analyzed based on the number of

employees that ADP’s prospective and actual clients have.

During the final years of her time at ADP, Pittman sold its products and

services to particularly identified employers with between 1,000 and 10,000

employees in Oregon, Vancouver, and Washington. Pittman’s assignment was

not explicitly defined in terms of a geographic territory, but rather in terms of

those specific accounts. That is, Pittman was limited to the 80-120 clients

provided to her in ADP’s database. Even within Oregon, Vancouver, and

Washington, she was not authorized to deal with other existing or prospective

ADP clients.

At Ultimate, Pittman is assigned to the geographic region and market

segment encompassing employers with 2,500 or more employees in Alaska,

Hawaii, Idaho, Montana, Oregon, and Washington. Only two of those states,

Oregon and Washington, overlap with her former assignment at ADP.

Approximately 35% of her clients at Ultimate are located outside of Oregon and

Washington. Pittman also now sells a single bundled solution called UltiPro,

which includes payroll, human resources, and talent management solutions.

The product that Pittman sold at ADP, recall, was a standalone payroll

solution, not a bundled product. It seems that ADP’s individual products

overlap the components of Ultimate’s bundled product, but ADP does not sell a

bundled product.

On these facts, Pittman insists that at Ultimate she does not serve the

same market segment or territory that she did at ADP. Pittman also

emphasizes that at ADP only 15% of her clients had more than 2,500

employees (the market size of her target clients at Ultimate). However, the

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Appellate Division has rejected the relevance of this datapoint, noting a lack of

“any rationale in the record to blue-pencil a market segment component into

the RCA... . The customer relationships ADP seeks to protect are the same,

regardless of how many employees the client might have.” Kusins, 2019 WL

3367212 at *17.

Contrary to Pittman’s contention, a state is an appropriate unit to define

the geographic limits of the RCA. Pittman insists that she was not assigned toa

territory, but there is sufficient evidence to infer that she was acting within

assigned states. (See DE 23 (listing Pittman’s assigned cities in Oregon and

Washington)). Her territory during her last two years at ADP included Oregon

and Washington, and at Ultimate, her territory now includes both. Thus, she

currently provides similar services to Ultimate as she did for ADP in direct

violation of the RCAs. Pittman insists that that ZIP codes are an appropriate

market division, but this is an arbitrary—and meaningless—dividing line

because her accounts at ADP were located in most of the largest cities in both

Oregon and Washington.!? Thus, to excise with precision from both states the

ZIP codes in which Pittman may operate would be a laborious and ultimately

meaningless exercise. While the Kusins court did not discuss geography

because the parties there conceded that point, the cases cited by Kusins on

that issue,!3 hold that it should correspond to the employee’s territory while at

ADP. For the sake of consistency, and because it makes sense here, I adopt

that approach.

The scope of the RCA, as blue penciled in accord with Kusins, is

reasonably tailored to protect ADP’s interest, while ensuring Pittman’s ability to

ply her trade. Although ADP’s business is international, the non-compete

12 Le, Portland, Salem, and Eugene in Oregon and Seattle, Spokane, and Tacoma

in Washington. (DE 23).

13 See ADP, LLC v. Lynch, Nos. 16-1053, 16-01111, 2016 WL 3574328, at *7-9

(D.N.J. June 30, 2016); ADP, LLC v. Jacobs, No. 15-3710, 2015 WL 4670805, at *5

(D.N.J. Aug. 5, 2015); ADP, LLC v, Manchir, No. 16-02541, 2017 WL 5185458, at *6-9

(Tenn. Ct. App. Nov. 8, 2017).

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provision is limited to the geographic territory in which Pittman worked while

at ADP. Pittman has many opportunities to work for Ultimate (or, presumably,

another competitor) outside her ADP territory. Indeed, Pittman’s territory at

Ultimate includes states she did not cover while at ADP and in which she may

continue to operate if she does not otherwise violate the RCA.

In sum, when balanced against ADP’s legitimate interests, the provisions

of the RCA do not severely restrict Pittman from maintaining her livelihood in

the same profession, and hence do not impose an undue hardship.

Accordingly, the language of the restrictive covenants, as blue penciled, are

reasonable and enforceable against Pittman.

(c) Public Interest

The final Solari factor instructs courts to consider the fact that

“enforcement of the restriction should not cause harm to the public.” Cmty.

Hosp., 183 N.J. at 60 (citing Karlin, 77 N.J. at 424). Like the ADP cases

reviewed in Rafferty, this case contains “no major public component.” The

imposition of restrictive covenants here creates no injury, for example, to “the

rights of the public to have free access to the advice of professionals licensed by

the State,” as it may do in the context of physicians and accountants.

Coskey’s, 253 N.J. Super. at 634. Like Rafferty, I find the public interests here

to be generic and equivocal.

* * *

I therefore find that ADP has a likelihood of success in its attempt to

enforce the RCA, as blue-penciled by the Court here. Pittman appears to be

violating the RCA into which she entered with ADP. Pittman has taken a

position with one of ADP’s direct competitors, a position in which she sells

competing products. ADP has demanded her compliance with the obligations

into which she and it entered and has, moreover, identified case law that

recognizes its legitimate business interest in enforcing the agreement.

Nonetheless, Pittman has remained in her position at Ultimate and refuses to

conform her behavior to accord with the agreement. Her counsel has responded

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on her behalf, admitting that she works for Ultimate in three states in which

she worked for ADP—Alaska, Oregon, and Washington—in violation of the non-

compete. Despite the restricted scope of the RCA, it nonetheless appears that

ADP has shown its likelihood of success on the merits.

2. Irreparable Harm

Harm is considered “irreparable” if it is not redressable by money

damages later, in the ordinary course of litigation. Instant Air Freight Co. v. C.F.

Air Freight, Inc., 882 F.2d 797, 801 (3d Cir. 1989) (citing Sampson v. Murray,

415 U.S. 61, 90 (1964)). ADP has the burden of proving a “clear showing of

immediate irreparable harm” absent injunctive relief. ECRI v. McGraw-Hill Inc.,

809 F.2d 223, 225 (3d Cir. 1987); see also Winter, 555 U.S. at 21 (holding it

was error to water down the irreparable harm requirement from “likelihood” to

“possibility.” even where likelihood of success was strong).

ADP argues that the irreparable harm it will suffer is the loss of existing

and prospective clients, employees, marketing partners, confidential and

proprietary information, and customer goodwill. Courts in the Third Circuit

and this District have had no difficulty in finding that the loss of business

opportunities and goodwill constitutes irreparable harm. Likewise. New Jersey

courts recognize that “the diversion of a company’s customers may. . .

constitute irreparable harm . .. . [T]his is so because the extent of the injury to

the business as a result of this type of conduct cannot be readily ascertained,

and as such, does not lend itself to a straightforward calculation of money

damages.” Fluorarnics, Inc. v. Trueba, No, 408-05, 2005 WL 3455185 at *8 (N.J.

Super. Ct. Ch. Div. Dec. 16, 2005) (citation omitted). Improper use of trade

secrets constitutes irreparable harm. See U.S. Food Serv., Inc. v. Raad, 2006

WL 1029653 at *6 (N.J. Super. Ch. Div. Apr. 12, 2006) at *7 (“Damages will not

be an adequate remedy when the competitor has obtained the secrets. The cat

is out of the bag and there is no way of knowing to what extent their use has

caused damage or loss.”).

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At a minimum, there is overlap between ADP and Ultimate’s lines of

business. UltiPro and WorkForce Now are overlapping products; Ultimate is a

direct competitor of ADP; and Pittman works in her former ADP territory.

Together these facts indicate that ADP has made a clear showing that Pittman’s

behavior establishes a strong likelihood of irreparable harm to ADP that is

independent of competitive harm. Such harm consists of potential misuse of

confidential information, loss of business opportunities, and impairment of

business goodwill. ADP has demonstrated that its injuries cannot be redressed

post hoc by money damages. This prong therefore favors a preliminary

injunction to prevent irreparable harm.

3. Balancing the Equities and the Public Interest

The final two prongs, balancing of the harms and the interest of the

public, require little additional discussion. They weigh in favor of granting

injunctive relief.

No doubt enforcement of the RCA will cause Pittman some countervailing

hardship. But that alleged hardship—requiring her to adhere to the RCA—is

neither precisely established nor unduly burdensome. For now, she may not

compete with ADP in two states. She may not solicit ADP’s actual or

prospective clients with which she had substantial dealings, or of which she

gained knowledge, while at ADP. She may continue to do everything short of

that (provided that her conduct does not otherwise violate the RCA). After a

year has passed, Pittman may continue working for Ultimate in the fullest

capacity. She may not disclose or exploit confidential information. The

opportunities open to Pittman remain substantial.

The public interest, for the reasons stated above, is a neutral factor.

Balancing the four relevant factors, I find that a preliminary injunction is

well justified. Accordingly, Pittman is for a period of twelve months enjoined

from: (1) directly or indirectly soliciting ADP’s actual clients with whom she

dealt substantially while at ADP or of whose identity she learned during her

employment at ADP; and (2) directly or indirectly soliciting ADP’s prospective

ao

clients of whose identity she learned during her employment at ADP. In line

with the RCA, the non-competition, non-solicitation, and non-interference

provisions shall be enforced for twelve months following Pittman’s severance

from ADP on June 14, 2019, except that the RCA’s tolling provision shall also

be enforced.!4

Vv. CONCLUSION

For the foregoing reasons, ADP’s motion for a preliminary injunction is

GRANTED.

Pursuant to the terms of the RCA, I will grant ADP preliminary injunctive

relief. Pittman shall be restrained, for a period of one year after the date of

entry of this preliminary injunction, from violating the agreements to the extent

stated above.

An appropriate Order granting ADP’s motion follows. Within seven days.

the parties shall submit an agreed form of preliminary injunction, which shall

specify the relief granted to implement the above rulings, and shall propose an

amount for the bond, which shall be posted within 15 days. See Fed. R. Civ. P.

65(c) (providing that this Court “may issue a preliminary injunction ... only if

the movant gives security in an amount that the court considers proper to pay

the costs and damages sustained by any party found to have been wrongfully

enjoined”).

14 The RCA’s tolling provision provides that:

The restricted time periods in paragraphs three (3) through six (6) above

shall be tolied 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.

(DE 3-8)

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Dated: October 18, 2019

ka {

Hon. Kevin McNulty

United States District Judge

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