1

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_______________

Nos. 18-1796 & 18-2603

_______________

ADP, LLC,

 Appellant

v.

NICOLE RAFFERTY

_______________

On Appeal from the District Court

of New Jersey

(D.N.J. No. 2:18-cv-01922)

Honorable Jose L. Linares, U.S. District Judge

_______________

ADP, LLC,

 Appellant

v.

KRISTI MORK

_______________

On Appeal from the District Court

of New Jersey
2

(D.N.J. No. 2:17-cv-04613)

Honorable Claire C. Cecchi, U.S. District Judge

_______________

Argued: September 6, 2018

Before: HARDIMAN, KRAUSE, and BIBAS, Circuit Judges

(Opinion Filed: April 26, 2019)

Harris S. Freier

494 Broad Street

Newark, NJ 07102

Timothy J. Lowe [Argued]

James J. Giszczak

McDonald Hopkins

39533 Woodward Avenue

Bloomfield Hills, MI 48304

Counsel for Appellant

John H. Schmidt, Jr. [Argued]

Lindabury McCormick Estabrook & Cooper

53 Cardinal Drive

P.O. Box 2369

Westfield, NJ 07091

Counsel for Appellees Nicole Rafferty and Kristi Mork

_______________

OPINION OF THE COURT

_______________
3

KRAUSE, Circuit Judge.

I. Introduction 

In this appeal, we must determine whether certain 

restrictive covenants, which high-performing employees enter 

into as a condition of a stock award, constitute an 

impermissible restraint on trade under New Jersey law. We 

conclude that these restrictive covenants are not unenforceable 

in their entirety because they serve a legitimate business 

interest, but they may place an undue hardship on employees

because they are overbroad. Accordingly, we will remand for 

the District Court to consider whether and to what extent it is 

necessary to curtail the restrictive covenants’ scope, which is 

the approach prescribed by the New Jersey Supreme Court

when confronted with overbroad restrictive covenants such as 

these. 

II. Factual Background

ADP, LLC (ADP) is a human capital management 

company that sells technology products and services related to 

payroll, human resources, benefits, talent management and 

recruiting to customers worldwide. ADP imposes restrictive 

covenants on its sales employees1in two layers. The first layer, 

which applies to all employees and includes a Sales 

Representative Agreement (SRA) and a Non-Disclosure 

Agreement (NDA) entered into at the time of hire, is a 

 

1 Throughout its briefs, ADP refers to these sales 

employees interchangeably as sales “associates” and 

“employees.” Hereinafter, for simplicity’s sake, we will refer 

to them as “employees.” 
4

condition of employment at ADP. The SRA and NDA prohibit

ADP employees from, among other things, soliciting any ADP 

“clients, bona fide prospective clients or marketing partners of 

businesses of [ADP] with which the Employee was involved 

or exposed” for one year after termination. Rafferty JA 42.

The second layer functions differently. Highperforming ADP employees who meet their sales targets are 

eligible to participate in a stock-option award program, but 

only if they agree to an additional restrictive covenant known 

as the Restrictive Covenant Agreement (RCA). Participation 

by eligible employees in the stock option program, in other 

words, is voluntary but conditioned on their assent to the terms 

of the RCA. ADP does not attempt to impose the RCA on other 

employees or in circumstances outside of the stock award 

program. It is not imposed, for instance, as a condition of 

initial or continued employment or in connection with other 

employment milestones such as a promotion or transfer. Nor 

does it entitle ADP employees to any employment benefits

beyond the compensation of the stock option award itself, such 

as more or different training or access to proprietary 

information. 

The RCA is undisputedly more onerous than the SRA 

and NDA, and makes it more difficult for former employees 

bound by its restrictions to compete with ADP upon their 

separation from the company. Specifically, the RCA contains 

a strengthened non-solicitation provision (Non-Solicitation 

Provision), which prohibits employees—for a period of one 

year following their termination (voluntary or involuntary)—

from soliciting any ADP clients to whom ADP “provides,” 

“has provided” or “reasonably expects” to provide business 

within the two-year period following the employee’s 
5

termination from ADP. Rafferty JA 78. Thus, unlike the SRA, 

which only prohibits solicitation of those ADP clients with 

whom the former employees “w[ere] involved or exposed,”

Rafferty JA 42, the RCA also prohibits solicitation of all 

current and prospective ADP clients. And while the SRA 

limits former employees’ solicitation of ADP’s “marketing 

partners,” Rafferty JA 42, the RCA prevents former employees 

from soliciting ADP’s “Business Partners,” which is defined to 

include “referral partners” in addition to “marketing partners,” 

Rafferty JA 76, 78.2

The RCA also contains a non-compete provision that is

absent from the SRA and NDA (Non-Compete Provision): For 

a period of one year following their termination, employees 

will not “participate in any manner with a Competing Business 

anywhere in the Territory where doing so will require [them] 

to [either] provide the same or substantially similar services to 

a Competing Business as those which [they] provided to ADP 

while employed,” or “use or disclose ADP’s Confidential 

Information or trade secrets.” Rafferty JA 78. The term 

“Territory” is defined as the “geographic area” where the 

employee worked or had contact with ADP clients in the two 

years prior to her termination. Rafferty JA 77.

 

2 The SRA’s non-solicitation provision states that 

former employees shall not “solicit, contact, call upon, 

communicate with or attempt to communicate with any Person 

which was a client, bona fide prospective client, or marketing 

partner” of ADP, whereas the RCA’s Non-Solicitation 

Provision states that former employees shall not “engage, 

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

from any Business Partner” of ADP. Rafferty JA 42, 78. 
6

Appellees Nicole Rafferty and Kristi Mork are both 

former employees of ADP who, shortly after voluntarily 

leaving ADP, began working at Ultimate Software Group

(Ultimate), a direct competitor of ADP. Rafferty and Mork 

each signed the SRA and NDA at the outset of their 

employment in Boston and Chicago, respectively, and each 

were eligible for and accepted restricted stock awards pursuant 

to the RCA over several consecutive years.

3

III. Procedural History

After ADP learned that each of Appellees joined 

Ultimate upon leaving, it filed a motion for preliminary 

injunction against each of Rafferty and Mork in the District of 

New Jersey, seeking enforcement of the SRA, NDA, and RCA, 

and alleging breach of contract, breach of duty of loyalty, and 

unfair competition. Their cases were consolidated only for 

purposes of this appeal.

A. District Court Proceedings in ADP v. Rafferty

(No. 18-cv-1922)

In ADP’s action against Rafferty in the District of New 

Jersey, which was assigned to Judge Linares, ADP sought to 

justify the imposition of all three restrictive covenants. 

Relying on the sworn statement of an ADP executive, ADP

 

3 We use the term “RCA” going forward to refer to the 

2015 RCA because, of the various iterations to which Rafferty 

and Mork agreed to be bound over the years, the 2015 version 

contains the most restrictive terms and, as the RCAs “don’t 

supersede one another,” those terms would “still be in effect.” 

Rafferty Dkt. No. 28 at 11. 
7

argued that the SRA and NDA, for their part, contain

reasonable restrictions designed to protect “the client 

relationships and the goodwill that sales associates will 

develop and help develop in the course of their job duties.” 

Rafferty JA 146. The RCAs, it urged, are similarly 

reasonable—albeit “more extensive”—because those 

employees that qualify for the stock award “demonstrate that 

they maintain the strongest personal relationships with their 

contacts at ADP and ADP’s clients and prospects,” “generally 

are involved with and have the most information about the 

largest number of ADP’s clients and prospects,” and have 

“demonstrated the greatest ability to attend to the specialized 

needs of ADP’s clients quickly and with continuity.” Rafferty 

JA 147. Thus, because the loss of high-performing employees

to a competitor poses a “particularly high risk to ADP with 

respect to interference with customer and prospect [sic]

relationships,” ADP maintained that the “heightened restrictive 

covenants in the RCA provisions” are justified. Rafferty JA 

148.

After a hearing, the District Court granted some of the

relief requested by ADP.

4

 Acknowledging Solari Industries, 

 

4 While Judge Linares cited his prior decision in ADP, 

LLC v. Jacobs, No. 2:15-3710 (JLL) (JAD), 2015 WL 4670805 

(D.N.J. Aug. 5, 2015)—where he came to the opposite 

conclusion as to the enforceability of the RCAs and held that, 

“prospective clients aside, [ADP] ha[d] articulated all of its 

corporate interests in enforcing the remaining non-competition 

aspects of the [RCA],” id. at *5—he did not distinguish Jacobs

from the instant case nor explain the reason for this divergent 

outcome. 
8

Inc. v. Malady, 264 A.2d 53 (N.J. 1970), where the New Jersey 

Supreme Court articulated factors to determine whether a postemployment restrictive covenant is enforceable—including

whether it “[1] simply protects the legitimate interests of the 

employer, [2] imposes no undue hardship on the employee, and 

[3] is not injurious to the public,” id. at 56—the District Court 

concluded that the RCAs were unenforceable per se. Citing 

Laidlaw, Inc. v. Student Transp. of Am., Inc., 20 F. Supp. 2d 

727, 762-63 (D.N.J. 1998), it reasoned that because ADP “does 

not require its employees to enter into the RCAs and does not 

even offer the RCAs to all of its employees,” the “purpose 

behind the RCAs is not to protect [ADP]’s legitimate interests 

but rather to decrease competition.” ADP, LLC v. Rafferty, No. 

18-1922 (JLL), 2018 WL 1617705, at *3 (D.N.J. Apr. 2, 2018). 

The Court also suggested that the RCAs “may also impose an 

undue hardship” on Rafferty because, notwithstanding its 

geographic and temporal scope, the “RCAs apply broadly to 

all of [ADP]’s current or prospective clients regardless of 

whether [Rafferty] had contact with those clients. . . .” Id. at 

*4 (emphasis in original). 

As to the enforceability of the SRA and NDA, however, 

the District Court reasoned that ADP had shown a likelihood 

of success because, under Solari, they serve a legitimate 

business interest in that they “are intended to protect [ADP]’s 

confidential and proprietary information and client 

relationships,” and are “narrowly tailored” to that end.5Id. 

 

5 The District Court further concluded that the SRA and 

NDA satisfied the other elements of the preliminary injunction 

test: Denial of relief would cause ADP irreparable harm in the 

form of “loss of good will,” Rafferty, 2018 WL 1617705, at *5; 

the balance of the interests tipped towards ADP because 
9

Because Rafferty had conceded at a hearing that the SRA and 

NDA were enforceable against her, the District Court did not 

further elaborate as to how those agreements satisfied the 

Solari factors. 

B. District Court Proceedings in ADP v. Mork (No. 

17-cv-4613)

In ADP’s action against Mork, assigned to Judge 

Cecchi, ADP defended the enforceability of the RCAs on the 

same grounds. Specifically, it put forth a declaration to support 

its position that those who receive restricted stock “have 

extensive contact with ADP clients because they sell the most 

ADP products and service[s] and are the most successful sales 

associates,” Mork JA 103, and “maintain the closest personal 

relationships with the key contacts and personnel” of ADP’s 

clients and prospects, id., and thus “possess the greatest 

potential to disrupt ADP’s relationships with its clients and 

prospective clients, [and] to harm the goodwill ADP has 

generated in the market,” id.

The District Court rejected those arguments, adopting 

Judge Linares’ reasoning in Rafferty in full, and concluding 

that “due to the RCA’s problematic nature and questions 

concerning their ultimate legitimacy as undue restraints on 

trade, [ADP] has not shown a substantial likelihood of success 

on the merits as to its claims under the RCAs.” ADP, LLC v. 

Mork, No. 17-4613 (CCC-MF), 2018 WL 3085215, at *4 

(D.N.J. June 22, 2018). 

 

Rafferty would not be required to quit her job; and the issuance 

of the injunction was in the public interest.
10

IV. Discussion

We review the District Court’s denial of a preliminary 

injunction for abuse of discretion and any underlying legal 

questions de novo.6 Am. Tel. & Tel. Co. v. Winback & 

Conserve Program, Inc., 42 F.3d 1421, 1427 (3d Cir. 1994). 

The four-factor preliminary injunction standard requires the 

moving party first to demonstrate a reasonable likelihood of 

success and that it would likely suffer irreparable harm absent 

an injunction. Reilly v. City of Harrisburg, 858 F.3d 173, 179 

(3d Cir. 2017), as amended (June 26, 2017). If the moving 

party makes this threshold showing, the court balances these 

factors, along with the relative hardship that the grant or denial 

of an injunction would inflict on the parties and the public 

interest. Id. at 179; Holland v. Rosen, 895 F.3d 272, 285-86 

(3d Cir. 2018).

Applying New Jersey law, we conclude that both tiers 

of ADP’s restrictive covenants further legitimate business 

interests and otherwise comply with the state’s public policy. 

Where, as here, a district court’s assessment of the merits rests 

on “an erroneous view of the applicable law,” its denial of a 

preliminary injunction cannot stand. Am. Tel. & Tel. Co., 42 

F.3d at 1427 (citation omitted). Accordingly, we will vacate 

the District Court’s order and remand for the District Court to 

blue pencil the agreements and reconsider the four-factor 

preliminary injunction standard.

 

6 The District Court exercised diversity jurisdiction 

under 28 U.S.C. § 1332, and we have interlocutory jurisdiction 

over the District Court’s denial of ADP’s motion for a 

preliminary injunction under 28 U.S.C. § 1292(a).
11

A. New Jersey Law

New Jersey has evolved from invalidating overbroad 

restrictive covenants outright to presumptively “compress[ing] 

or reduc[ing]” their scope “so as to render the covenants 

reasonable.” Karlin v. Weinberg, 390 A.2d 1161, 1168 n.4 

(N.J. 1978); see Maw v. Advanced Clinical Commc’ns, Inc., 

846 A.2d 604, 608-09 (N.J. 2004). Known as partial 

enforcement or blue penciling,7this rule favors granting “that 

limited measure of relief within the terms of the 

noncompetitive agreement” that (1) protects a legitimate 

business interest, (2) does not unduly burden an employee, and 

(3) adheres to the public interest. Solari, 264 A.2d at 61. As 

detailed below, by eschewing a dichotomous choice between 

enforcement and invalidation, New Jersey aims to fulfill a 

restrictive covenant’s lawful objectives while nevertheless 

ensuring that such agreements do not unreasonably hinder 

competition or employee mobility. See Maw, 846 A.2d at 609.

For more than a century, New Jersey has upheld 

restrictive covenants in employment agreements, see Sternberg 

v. O’Brien, 22 A. 348, 349-50 (N.J. Ch. 1891); Mandeville v. 

Harman, 7 A. 37, 41 (N.J. Ch. 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 

 

7 As the name suggests, the term “blue penciling” at first 

referred to rendering a restrictive covenant reasonable by 

striking divisible portions, see Solari, 264 A.2d at 57, but in 

New Jersey it has come to mean any tailoring of a restrictive 

covenant, Cmty. Hosp. Grp., Inc. v. More, 869 A.2d 884, 892 

n.3 (N.J. 2005).
12

enforced at all, it must be enforced according to its terms”). 

The doctrine evinced a judicial reluctance to modify 

agreements; under this view, “distill[ing] from the broad 

generalities” in a restrictive covenant “narrower and more 

meaningful restrictions would constitute no less than a 

rewriting of the provision.” Hudson Foam Latex Prods., Inc. 

v. Aiken, 198 A.2d 136, 141 (N.J. Super. Ct. App. Div. 1964); 

see Mandeville, 7 A. at 38. Secondary doctrines lessened the 

harshness of the complete-invalidation rule by allowing for the 

enforcement of “divisible” clauses or subsets, see Creter v. 

Creter, 145 A.2d 149, 153-54 (N.J. Super Ct. App. Div. 1958), 

but these exceptions “exalted formalisms and rewarded artful 

draftsmanships,” Solari, 264 A.2d at 60.

In its seminal decision in Solari Industries, Inc. v. 

Malady, 264 A.2d 53 (N.J. 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.” Id. at 60. That is, employers may “act in 

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

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.” Id. at 60. Under the new approach, 
13

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.” Id. at 56, 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. v. Foti, 602 A.2d 789, 

793, 796 (N.J. Super. Ct. 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, 274 A.2d 577, 581 (N.J. 1971); see IngersollRand Co. v. Ciavatta, 542 A.2d 879, 892-93 (N.J. 1988). But 

New Jersey courts have stressed that employers have “patently 

legitimate” interests in their trade secrets, confidential business 

information, and customer relationships.

8

 Whitmyer Bros., 274 

 

8 New Jersey has accepted that an employer may adopt 

a restrictive covenant to protect some “highly specialized, 

current information not generally known in the industry” even 

if it does not qualify as a trade secret or confidential business 

information. Ingersoll-Rand, 542 A.2d at 894; see Cmty. 

Hosp. Grp., 869 A.2d at 897. This interest must be 
14

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., Inc. v. 

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

Appellate Division enforced a management consulting firm’s 

restrictive covenant to protect its former employee’s client 

relationships. Id. at 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. Inc., 478 

A.2d 1208, 1211-12 (N.J. Super. Ct. 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 

 

“construe[d] narrowly,” Ingersoll-Rand, 542 A.2d at 894, and 

does not pertain to the present dispute.
15

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 (KM/JBC),

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

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

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

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

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 
16

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.

B. Application to the RCA

Mindful of New Jersey’s strong preference for blue 

penciling, we turn to whether ADP’s second tier of restrictive 

covenants, the RCA, is wholly invalid. In evaluating the RCA, 

we consider (1) whether ADP has a legitimate business interest 

in imposing the RCA in exchange for participation in its stockaward program; (2) if so, whether that legitimate business 

interest is negated because the RCA, which is imposed on a 

subset of ADP employees, is layered on top of the SRA and 

NDA, which are imposed on all employees; (3) whether the 

breadth of the RCA imposes a level of hardship on employees 

so great as to render it entirely unenforceable; and (4) whether, 

on balance, the RCA is injurious to the public.

1. The RCA Serves a Legitimate Business 

Interest

The enforceability of the RCA, a supplemental layer of 

restrictive covenants that are imposed on only those ADP 

employees who qualify for and accept ADP’s stock-option 

award, depends on whether it “simply protects the legitimate 

interests of [ADP].” Solari, 264 A.2d at 56. Appellees 

concede that ADP has a legitimate interest in protecting its 

client relationships by imposing the more modest restrictions 

set forth in the SRA and NDA on all employees, but argue that

it has no legitimate interest in imposing the “more onerous 

RCAs” on a small group of high-performing employees 
17

because “ADP’s legitimate interests were fully protected by 

the SRA and NDA.” Rafferty’s Br. 19. We disagree. 

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 a client 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 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.

2. Selective Imposition of the RCA Does Not 

Negate ADP’s Legitimate Business 

Interests

Appellees additionally argue, and the District Courts 

agreed, that any legitimate interest in protecting client 
18

relationships that the RCA may serve is negated by virtue of 

the fact that it is selectively imposed on a subset of ADP 

employees as a second layer of restrictive covenants, and is not 

conditional of anything other than receipt of the stock award

itself. They argue that because the acceptance of the RCA was 

not a condition of initial or continued employment, it did not 

entitle the employees to access any “additional” or “different” 

confidential information, such as client lists, Rafferty Br. 19-

20, and was not tied to any specific employment milestones, 

the imposition of the RCA bespeaks an intent to “prevent[] 

competition as such,” Whitmyer, 274 A.2d at 581, rendering 

any proffered legitimate business interest mere pretext.

Appellees’ argument largely relies on the reasoning set 

forth in Laidlaw, which held that a restrictive covenant tied to 

a stock-option award was an unenforceable restraint of trade 

under New Jersey law because its “primary purpose” was “to 

buy out potential competition.” 20 F. Supp. 2d at 763. 

Framing the issue in colloquial terms, the district court noted 

that businesses typically require prospective employees to sign 

restrictive covenants that say, in effect:

We want to hire you. But if you come work for 

us, you will obtain confidential information and 

develop customer relationships while working 

here. After you leave us, we do not want you to 

go out and use that information and those 

relationships to harm us. So if you want to work 

for us, you have to first promise that you will not 

compete against us for a period after you leave

us.
19

Id. at 763. Because the restrictive covenant was not a condition 

of “employment, obtaining a particular position within the 

Company, receiving confidential information, or the 

opportunity to develop customer relationships,” and instead the 

employees bound by it had begun receiving proprietary 

information and developing client relationships before 

agreeing to its terms, the district court concluded that they 

served no legitimate business interest and were per se 

unenforceable. Id. at 763-65.

We, like most courts that have confronted this issue,

9

are not persuaded by Laidlaw and decline to adopt its 

 

9 While the District Judges here and Judge Kessler of 

the New Jersey Superior Court found Laidlaw persuasive in 

this context, see ADP, LLC v. Hobaica, No. C-118-16 (Oral 

Op. N.J. Super. Ct. Law Div. Apr. 23, 2018) (Rafferty 

Addendum 72-75); ADP, LLC v. Kusins, No. ESX-C-264-15

(Ltr. Op. N.J. Super. Ct. Ch. Div. June 27, 2017) (Rafferty JA 

585-659); ADP, LLC v. DeMarco, No. C-120-16 (Ltr. Op. N.J. 

Super. Ct. Ch. Div. Apr. 27, 2017) (Rafferty Addendum 1-69), 

most judges have not, see ADP, LLC v. LeNoble, No. ESX-C117-16 (Ltr. Op. N.J. Super. Ct. Ch. Div. Jan. 24, 2018) 

(Rafferty JA 897-936); ADP, LLC v. Manchir, No. M2016-

02541, 2017 WL 5185458 (Tenn. Ct. App. Nov. 8, 2017); 

ADP, LLC v. Hopper, No. ESX-C-23-16, (Oral Op. N.J. Super. 

Ct. Ch. Div. June 30, 2017) (Rafferty JA 770-830); ADP, LLC 

v. Karamitas, No. ESX-C-143-16 (Oral Op. N.J. Super. Ct. Ch. 

Div. June 30, 2017) (Rafferty JA 850-895); ADP, LLC v. 

Lynch, Nos. 2:16-1053 (WJM), 2:16-01111 (WJM), 2016 WL 

3574328 (D.N.J. June 30, 2016), aff’d 678 F. App’x 77, 80 (3d 

Cir. 2017); ADP, LLC v. Jacobs, No. 2:15-3710 (JLL) (JAD), 

2015 WL 4670805 (D.N.J. Aug. 5, 2015).
20

reasoning.

10

 And while the New Jersey Supreme Court has 

acknowledged that it may be “difficult to draw” the line 

 

10 Relatedly, Appellees’ argument that ADP should be 

collaterally estopped from arguing that the RCAs are 

enforceable because a number of trial court decisions have held 

the RCAs unenforceable is meritless. Whether a state court 

judgment should have a preclusive effect in a subsequent 

federal action depends on the law of the state that adjudicated 

the original action; here, the law of New Jersey. Greenleaf v. 

Garlock, Inc., 174 F.3d 352, 357 (3d Cir. 1999). “New Jersey 

courts follow the doctrine of collateral estoppel or the rule of 

issue preclusion described in the Restatement of 

Judgments.” Hernandez v. Region Nine Hous. Corp., 684 A.2d 

1385, 1391 (N.J. 1996). The Restatement states, in pertinent 

part, that in order to avoid a preclusion bar, a plaintiff must 

demonstrate that it “lacked full and fair opportunity to litigate 

the issue” in the prior proceeding, or that “other circumstances 

justify affording [plaintiff] an opportunity to relitigate the 

issue.” Restatement (Second) of Judgments § 29 (1982). 

Among the factors to be considered as to this limitation of 

collateral estoppel in a subsequent litigation is whether “[t]he 

determination relied on as preclusive was itself inconsistent 

with another determination of the same issue,” id., in which 

case a court’s “confidence [in the result] is generally 

unwarranted,” id. § 29 cmt. f. Here, there are clearly 

inconsistent prior determinations, such that this Court cannot 

be confident in (in fact, it rejects) the result Judge Kessler 

reached in cases finding these restrictions unenforceable. 

Accordingly, ADP is not precluded from arguing that the RCA 

is enforceable, notwithstanding any prior judgments to the 

contrary.
21

between a corporation’s legitimate attempts to protect its client 

relationships and illegitimate attempts to lay claim to the

“general skills and knowledge of a highly sophisticated 

employee,” Ingersoll-Rand, 542 A.2d at 894, we do not 

perceive a bright line rule that restrictive covenants are 

unenforceable restraints on trade if imposed selectively and as 

a second layer—the rule apparently endorsed by the Laidlaw 

court and the District Courts here—to be consistent with Solari 

and its progeny. 

For one, ADP’s two-tiered system of binding only a 

subset of high-performing employees necessarily amounts to 

less of a restraint on trade than a single-tier system in which 

ADP imposed the RCA on all employees at the outset of 

employment. While New Jersey courts certainly recognize that 

“[e]ach client that [ADP] is able to attract represents a 

significant investment of time, effort and money which is 

worthy of protection,” ADP is not in a position to know at the 

time of hire from which of its employees it will most need that 

protection. A. T. Hudson & Co., 524 A.2d at 416. Thus, ADP 

restrains trade less by declining to uniformly, and perhaps 

prophylactically, impose the RCA until it knows, through the 

proxy of met sales targets, which of its employees will go on 

to develop either a greater number of or deeper relationships

with ADP’s clients (or both). Appellees object that “ADP did 

not and cannot offer any evidence that high performers bound 

to the more restrictive RCAs have access to additional 

confidential information that is not available to lower 

performers who are only bound by the SRA and NDA.”

Rafferty Br. 20. But as even Appellees seem to recognize, that 

observation bears only on ADP’s ability “to meet its burden to 

show that the RCAs were aimed at protecting ADP’s 

confidential information,” id. (emphasis added); it does not 
22

detract from the ample evidence in the record that the RCA is

aimed at protecting ADP’s client relationships.

Nor are we persuaded that because “[p]articipation in 

ADP’s incentive stock awards was entirely voluntary,” Mork 

Br. 26, and because ADP does not penalize its qualifying 

employees for declining to accept the award and 

accompanying RCA, “the primary purpose of the stock-option 

non-competes is not to protect [ADP’s] legitimate interests, but 

to buy out potential competition,” Laidlaw, 20 F. Supp. 2d at 

763. For starters, we find the premise of this argument itself 

questionable, for ADP employees who decline to agree to the 

RCA are penalized in that they must forego the compensation 

award that they otherwise have earned. But more 

fundamentally, ADP’s decision not to further penalize 

employees for rejecting the RCA is not proof that the RCA is 

“principally directed at lessening competition.” IngersollRand, 542 A.2d at 889 (citation omitted). Rather, as reflected 

in the declarations of ADP’s witnesses, it manifests a 

reasonable business judgment as to how to best balance its

employees’ and the public’s need for free competition with its 

own need to protect its legitimate business interests.11

 

11 We are not unmindful of the language appearing in 

one of the declarations submitted by ADP in support of its 

motions for preliminary injunction that identifies as one 

justification for the RCA the notion that employees subject to 

it have demonstrated “unique knowledge, skills and job

performance,” Rafferty JA 148—precisely the kinds of 

intangible tools that New Jersey courts say employers have “no 

legitimate interest” in protecting, Whitmyer Bros., 274 A.2d at 

581. That isolated statement, however, does not undermine 

ADP’s other evidence reflecting that the RCA principally 
23

In concluding that ADP’s interests are strong enough to

warrant enforcement of its RCA, we do not disregard the fact 

that Appellees may have countervailing interests, including 

that they have acquired skill and expertise while working at 

ADP that have “become part of the[ir] person,” and that now 

“belong to [them] as [individuals] for the transaction of any 

business in which [they] may engage.” Id. at 892 (citation 

omitted). As the New Jersey Supreme Court instructs, 

however, under these circumstances courts should tailor the 

restrictions through the process of blue penciling rather than 

holding them to be void per se where, as here, there is no 

allegation or evidence of bad faith. See Solari, 264 A.2d at 61. 

We turn next to that analysis.

3. Undue Hardship

Under New Jersey law, “[e]ven if the covenant is found 

enforceable” because it 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, 602 A.2d at 793

(citations omitted). To determine whether and to what extent 

the RCA must be blue penciled, the Court must “balance the 

 

serves a legitimate business purpose. Even in the declaration 

in which this troubling language appears, the declarant goes on 

to explain that the RCA is imposed on those employees who, 

by virtue of their client relationships developed over time, have 

“the greatest potential to disrupt ADP’s relationships with its 

clients and prospective clients, [and] to harm the goodwill 

ADP has generated in the market.” Rafferty JA 148.
24

employer’s need for protection and the hardship on the 

employee that may result.” Ingersoll-Rand, 542 A.2d at 894. 

We acknowledge that the enforcement of the RCA

would impose some level of hardship on former ADP 

employees who want to market themselves in the same field in 

which they have previously worked. After all, it would require 

them to refrain from soliciting business from anyone “with 

whom ADP reasonably expects business within the two (2) 

year period following [their] . . . termination of employment,” 

and to refrain from working “in any manner with a Competing 

Business anywhere in the Territory where doing so will require 

[them]” to either “provide the same or substantially similar 

services to a Competing Business as those which [they]

provided to ADP while employed,” or “use or disclose ADP’s 

Confidential Information or trade secrets.” Rafferty JA 78.

“The question remains, however, whether this hardship [is] 

‘undue,’ when balanced against the legitimate interest of the 

employer.” Coskey’s, 602 A.2d at 794. 

Many courts considering the enforceability of the RCA, 

including Judge Linares in a decision three years before the 

case presently before us, have concluded, at the very least, that 

“restricting [former ADP employees] from soliciting 

prospective clients—of which [they] did not gain knowledge 

of [sic] through ADP”—is not a reasonable covenant 

provision. ADP, LLC v. Jacobs, No. 2:15-3710 (JLL) (JAD), 

2015 WL 4670805, at *5 (D.N.J. Aug. 5, 2015); see also ADP, 

LLC v. Lynch, Nos. 2:16-1053 (WJM), 2:16-01111 (WJM), 

2016 WL 3574328, at *7-*9 (D.N.J. June 30, 2016), aff’d 678 

F. App’x 77, 80 (3d Cir. 2017); ADP, LLC v. Manchir, No. 

M2016-02541-COA-R3-CV, 2017 WL 5185458, at *6-*9

(Tenn. Ct. App. Nov. 8, 2017). Others have deemed heavier 
25

blue penciling necessary to render the RCA not unduly 

burdensome, by, inter alia, limiting the restricted “Territory” 

in the non-compete in terms of both geographic area and 

market share, see ADP, LLC v. LeNoble, No. ESX-C-117-16

(Ltr. Op. N.J. Super. Ct. Ch. Div. Jan. 24, 2018) (Rafferty JA 

930) (“The Court finds that the non-competition clauses in this 

matter should be limited to both the northwest Chicago suburbs 

and to employers with fewer than fifty employees.”), or by 

“blue pencil[ing] the geographic restriction [contained in the 

non-compete clause] into the non-solicitation clause,” ADP, 

LLC v. Hopper, No. ESX-C-23-16, (Oral Op. N.J. Super. Ct. 

Ch. Div. June 30, 2017) (Rafferty JA 809).

Here, ADP concedes—perhaps in light of these

decisions—that the non-solicitation provision of the RCA is 

overbroad and must be blue penciled to the extent that it 

restricts employees from soliciting prospective clients “of 

which [Appellees] did not gain knowledge of [sic] through 

ADP.” ADP Rafferty Br. 19 (quoting Jacobs, 2015 WL 

4670805, at *5). The District Courts, however, having 

concluded that the RCA was unenforceable per se, did not have 

occasion to consider the effect of this concession or the extent 

to which the RCA could be blue penciled to avoid an undue 

burden on Appellees. 

They also did not have an opportunity to consider other 

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,12 see Karlin, 390 A.2d at 1169, and the fact that 

 

12 On this point, ADP contends that contrary to Judge 

Linares’ conclusion that ADP “seeks to enjoin [Rafferty] from 
26

both Appellees voluntarily resigned from ADP and chose to 

immediately join Ultimate, a direct competitor, thereby 

arguably “br[inging] any hardship upon [themselves],” Cmty. 

Hosp. Grp., 869 A.2d at 898. 

In short, the undue hardship factor, too, counsels in 

favor of blue penciling and, in any event, compels a remand for 

the District Court to determine in the first instance the extent 

of the employees’ hardship and the specific revisions that could 

be made to render the RCA reasonable under the 

circumstances. 

4. Injury to the Public

The final Solari factor instructs courts to consider the 

fact that “enforcement of the restriction should not cause harm 

to the public.” Id. (citing Karlin, 390 A.2d at 1161). Because

this case contains “no major public component,” the imposition 

of restrictive covenants here creates no injury to the public in 

the nature of “the rights of the public to have free access to the 

advice of professionals licensed by the State,” Coskey’s, 602

A.2d at 793, as it may, for example, in the context of physicians

 

working for Ultimate for a period of twelve months,” Rafferty, 

2018 WL 1617705, at *3, it is merely asking “that she be 

precluded from working within her prior ADP territory for one 

year, consistent with the terms of the RCAs,” ADP Rafferty 

Br. 25. “Since her territory at [Ultimate] is larger than her 

territory was at ADP, there is no reason for her to be required 

to quit her job. Id. While the District Courts found these points 

salient with respect to the Solari analysis of the SRA and NDA, 

they did not reach them with respect to the RCA, having 

concluded that they are unenforceable per se. 
27

and accountants, see Karlin, 390 A.2d at 1169-70 (physicians); 

Schuhalter v. Salerno, 653 A.2d 596, 600 (N.J. Super. Ct. App. 

Div. 1995) (accountants). Here, the public interest points both 

ways—towards the employees’ ability to use their marketable 

skills and the employer’s interest in protecting its goodwill and 

client relationships—and is ultimately equivocal. Thus, we are 

confident that the approach outlined above balances the 

relative interests of ADP and Appellees in a way that comports 

with the public interest, including the clear preference under 

New Jersey law to modify overbroad restrictive covenants 

rather than nullify them outright. 

* * *

Having concluded that the RCA is not a per se 

unenforceable restraint on trade and that each of the Solari

factors favors at least partial enforcement, we will leave the 

next steps concerning appropriate balancing and blue penciling 

in the capable hands of the District Courts.

V. Conclusion

For the foregoing reasons, we will vacate the judgment 

of the District Courts and will remand for further proceedings 

consistent with this opinion.