ADP, LLC v. Kusins

• Court: New Jersey Superior Court — Appellate Division
• Writing for the Court: CURRIER, J.A.D.
• Citation: ADP, LLC v. Kusins, 460 N.J.Super. 368, 215 A.3d 924 (N.J. Super. App. Div. 2019)
• Decision Date: 26 July 2019
• Docket Number: A-0693-17T3,DOCKET NOS. A-4664-16T1,A-4407-17T4,A-4527-17T4,A-2990-17T4,A-0692-17T3
• Parties: ADP, LLC, Plaintiff-Appellant/Cross-Respondent, v. 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.

460 N.J.Super. 368

215 A.3d 924

ADP, LLC, Plaintiff-Appellant/Cross-Respondent,

v.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.

DOCKET NOS. A-4664-16T1

A-0692-17T3

A-0693-17T3

A-2990-17T4

A-4407-17T4

A-4527-17T4

Superior Court of New Jersey, Appellate Division.

Argued May 15, 2019

Decided July 26, 2019

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., Westfield, 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).

Before Judges Koblitz, Currier, and Mayer.

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 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 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 prospective 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 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 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.

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 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:

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

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