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Non-compete restrictive covenants are enforceable if they serve a legitimate business reason, but their scope is subject to revision if undue hardship is found.

July 1, 2019
ADP, LLC v. Rafferty; Docket Nos. 18-1796 (3d Cir. Apr. 28, 2019)

The employer imposed two restrictive covenants on its employees, the first as a condition of hiring and a second, more restrictive covenant, for “high-performing employees” that was a condition of receiving a stock award with the company. The more restrictive covenant prevented former employees from taking a job with a competitor for one year after termination in the geographic area where they worked or had contact with the employer’s clients in the two years prior to termination. The court applied a three-factor test from Solari Industries Inc. v. Malady, A.2d 53 (N.J. 1970): (1) whether the covenant protects the legitimate business interests of the employer; (2) whether it imposes an undue hardship on the employee; and (3) whether it is injurious to the public. The court focused heavily on the legitimate business interest analysis, deciding that the two-tiered restrictive covenant system was only binding on a small subset of “high-performing” employees and, thus, less of a restraint on trade. The court also decided that the covenant was a reasonable business judgment to protect its interest while also balancing those of the employee and the public. The Appellate Court remanded the case back to the trial court to determine whether the second restriction imposed an undue hardship and should be narrowed in scope. 

 

Case Law Alerts, 3rd Quarter, July 2019

Case Law Alerts is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. Copyright © 2019 Marshall Dennehey Warner Coleman & Goggin, all rights reserved. This article may not be reprinted without the express written permission of our firm.

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