A rare appellate decision on non-compete and non-solicitation agreements in employment contracts generally upholds a company’s rights to protect its client list, but narrows the scope a little.
As lawyers for Jackson Lewis explain in this article, appellate decisions on restrictive covenant agreements (RCAs) are rare, so the case of ADP, LLC v. Kusins, decided July 26, deserves attention. In it, defendants are appealing their alleged violations of their former company’s RCAs. The ruling seems to be generally good news for employers.
“In Kusins, the New Jersey Appellate Division clarified that, notwithstanding news reports and legislation aimed at limiting the use and enforceability of non-competition agreements, such restrictive covenants remain enforceable in New Jersey,” write attorneys Erik Winton, James McDonnell, Joshua Allen and Carlyle Edwards-Balfour.
At issue is a two-tiered system of restrictive covenants the company maintained: one for the sales representatives containing general non-compete and non-solicitation provisions limited to their geographic regions, and another, more restrictive one for upper level employees. As the Jackson Lewis attorneys described the decision, the courts upheld the two-tier system, but found some of the details for the second tier RCAs to be unreasonable and, therefore, unenforceable.
Specifically, the court rejected a clause that applied to any and all company clients, not just the existing clients the representative actively worked on or whose identity the representative learned of while employed by the company. Similarly, another clause applied to any prospective client, which the court said needed to be changed to prospective clients the employee gained knowledge of while at the company.
“New Jersey companies or companies with a New Jersey choice-of-law provision in their RCAs should review existing non-competition and non-solicitation agreements to determine compliance with Kusins,” the attorneys state. “Moreover, with the Court’s express approval of a two-tiered restrictive covenant system, companies may want to explore implementing a similar protocol to ensure that the level of limitations reflects an employee’s position with the company.”