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Third Circuit to NJ Employees: Some Non-Compete Agreements Will Come Back to Bite You

After six years of service, Jordan Lynch and John Halpin decided to leave their sales positions at ADP and go to work for a direct competitor, Ultimate Software Group. ADP sued the former salesmen for soliciting current and prospective customers. ADP asked the federal court to enforce the non-compete agreement that Lynch and Halpin accepted in exchange for stock awards.

The district court granted a preliminary injunction favoring ADP, and enforced the non-compete, which prevented Lynch and Halpin from soliciting ADP’s current and prospective customers for one year. Lynch and Halpin appealed the decision because ADP delivered the non-compete clauses online, and merely asked them to click a checkbox acknowledging they had read the clauses (it never said “accept”). The Third Circuit Court of Appeals agreed with the District Court that by accepting stock awards from ADP, which the defendants could only do by acknowledging the non-compete clause, they had in fact accepted the non-compete clauses — despite the ambiguous wording of the form.

The Third Circuit found it persuasive that the documents explicitly advised the defendants the covenants not to compete were a condition of receiving the stock award. To accept the stock award, defendants had to check a box acknowledging they read the agreement, click a button labeled “Accept Grant”, and then enter a personal password. Whether Lynch and Halpin actually read the documents was not relevant: parties who enter into such agreements are presumed to have read, understood, and agreed to the terms.

This case has some key lessons for New Jersey employees:

  1. Covenants not to compete are enforceable, if they meet legal standards.
  2. Depending on the context, the wording used to gain employee acceptance of non-competition agreements is not all-important. It is but one factor among several.
  3. Employees who receive benefits in exchange for agreeing to a non-compete are presumed to have accepted it even if they later claim not to have read the agreement.

The Third Circuit’s approach in this case was less formulaic and more common-sensible.

If you have questions or concerns about whether a current or former employer can enforce a non-compete agreement against you, then you should call an experienced employment law attorney for workers.  At the law offices of Hanan M. Isaacs, P.C., we will listen to your facts, explain the law, and recommend action that will bring you closer to your social and economic goals. Call 609-683-7400 or contact us online to make a reduced fee initial consultation appointment in our Central Jersey offices in Kingston. Call today.  You will be glad you did.

Hanan M. Isaacs, P.C.
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