Chicago Business Litigation Lawyer Blog
Recently, a unanimous U.S. Third Circuit appellate court upheld payroll company Automatic Data Processing’s (“ADP”) non-compete agreements but remanded the case to the district court for tailoring. The federal appeals court reversed a decision by the district court which had found the covenants not to compete to be unenforceable. In reversing the lower court, the Third Circuit found that the non-compete agreements were necessary to protect ADP’s client relationships and goodwill, interests that New Jersey courts, “consistently recognize as legitimate.”
According to the Third Circuit’s opinion, ADP requires certain high-performing employees to sign non-compete agreements and similar pledges in order to qualify for stock option awards. These restrictive covenants prohibit employees who received stock options from working for a competitor for one year and from soliciting ADP’s current or prospective clients for two years after leaving ADP. Two former ADP employees challenged ADP’s practice, alleging that the restrictive covenants were more onerous than they needed to be. The Third Circuit found that the solution in such circumstances is to amend, or “blue pencil” the non-compete agreements, not find them entirely unenforceable. Continue reading ›