A restrictive covenant imposed on employees of payroll services provider ADP is overbroad and might put forth undue hardship, the U.S. Court of Appeals for the Third Circuit has ruled.
ADP’s restrictive covenant agreement (RCA), which prohibits former employees from soliciting the company’s clients for a one-year period after leaving, constitutes an impermissible restraint on trade under New Jersey law, the appeals court said Friday. But the appeals court overturned rulings by two U.S. District Court judges who concluded that the RCA is unenforceable. The RCA furthers legitimate business interests and otherwise complies with the state’s public policy, the appeals court said, sending the pair of consolidated cases back to District Court for judges to “blue pencil” the covenants, reducing their scope to more reasonable terms.
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