ADP, LLC v. RAFFERTY

Filing 31

OPINION. Signed by Chief Judge Jose L. Linares on 4/2/18. (cm, )

NOT FOR PUBLICATION

UNiTED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

Civil Action No.: 18-1922 (JLL)
ADP, LLC,
OPINION
Plaintiff,

V.
NICOLE RAFFERTY,

Defendant.

LINARES, Chief District Judge.

This matter comes before the Court by way of Plaintiff ADP, LLC’s Motion for a
Temporary Restraining Order and a Preliminary Injunction against Defendant Nicole Rafferty
pursuant to Federal Rule of Civil Procedure 65. (ECF No. 3). The Court has considered the
submissions made in support of and in opposition to Plaintiffs motion, as well as the arguments
made at the February 22, 2018 hearing, and finds that the Court has sufficient information to rule
on the motion for both a temporary restraining order and a preliminary injunction. For the reasons
set forth below, Plaintiff’s motion is granted in part and denied in part.
I.

BACKGROUND

Plaintiff is a provider of “business outsourcing and software services... including human
resources, payroll, tax, and benefits administration services.”
Defendant worked for Plaintiff from 2010 until 2017. (Compl.

(ECF No. I (“Compi.”)

¶ 9).

¶

6).

During the last three years of

her employment with Plaintiff, Defendant worked as a “Comprehensive Services Manager”

throughout Rhode Island, central and southern Maine, central Massachusetts, and the Greater
Boston area.1 (Compi.

¶ 9).

In her capacity as a Comprehensive Services Manager, Defendant

“sold business process outsourcing services, which are [Plaintiffs] most strategic and expensive
products” to Plaintiffs “highest worth clients.” (Cornpl.

¶ 9).

Throughout Defendant’s employment, Plaintiff claims that Defendant received unique
specialized training, maintained substantial contact with current and prospective clients, and
possessed “confidential, proprietary, and trade secret infonnation.” (Compi.

¶]

2 1—23). This

information included, but is not limited to, business methods, pricing and marketing strategies, as
well as information regarding sales, clients, compensation, and marketing partners. (Cornpl.

¶ 23).

Plaintiff keeps a close guard over its proprietary information and takes steps to ensure that the
information is kept secret, e.g., requiring employees to enter into confidentiality and restrictive
covenant agreements. (Cornpl.

¶J 24—26).

Defendant signed a Sales Representative Agreement (“SRA”) and a Non-Disclosure
Agreement (“NDA”) when she began working for Plaintiff, which is standard practice for
Plaintiffs new employees. (Cornpl.

¶f

10—11). The SRA provided in relevant part that, starting

at the time Defendant begins working for Plaintiff and ending one year after she ceases her
employment, the
Employee shall not, on Employee’s behalf or on behalf of any other person,
or
other entity whatsoever (a “Person”), directly or indirectly, 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 [Plaintiff] before the
date Employee ceases to be an employee of [Plaintiff] (the “Termination Date”)
that (i) was located in any territory Employee managed or to which Employee was
assigned or covered during the two-year period prior to the Termination Date and/or
(ii) Employee was assigned, managed and/or had knowledge of, contact or
involvement with during the two-year period prior to the Termination Date, to sell
license or lease any software, product or service competitive or potentially
.

.

.

The Greater Boston area, as referred to here, includes eastern Massachusetts and New Hampshire. (Compi.
Hr’g Tr. at 8:9—17).

¶f 29;

competitive with any software, product or service sold, licensed, leased, provided
or under development by [Plaintiff] during the two-year pei-iod prior to the
Termination Date, provided that the restrictions set forth in this paragraph shalt
only apply to clients, bona fide prospective clients or marketing partners of
businesses of [Plaintiff] with it’hich the Employee was i,n’olved or exposed.
(ECF No. 1-1 at Ex. A (“SRA”),

¶ 4(a))

(emphasis added). The SRA also restricted Defendant

from disclosing “any business methods, procedures, pricing and marketing structure and strategy,
programs, forms, confidential information, trade secrets, the names and addresses of current,
former clients and prospective clients of [Plaintiff], or other data and information relating to
[Plaintiff]” or using or acting upon such information in anyway. (SRA

¶ 4(b)—(c)).

Upon her

ten-nination or resignation, Defendant was reqctired, under the SRA, to return “all copies of all
materials” which belong to Plaintiff that are within her possession. (SRA

4(b)). The SRA

prohibited Defendant from soliciting any of Plaintiffs employees for one year after the date she
ceases to be an employee of Plaintiff. (SRA

¶ 4(d)).

The SRA also stated that “a violation of the

foregoing covenants not to solicit, not to disclose, not to use and not to hire or any provisions
thereof will cause irreparable injury to [Plaintiff].”

(SRA

¶

4(e)).

The NDA contained

substantially similar terms. (See generally ECF No. 1-1 at Ex. B (“NDA”)).
Plaintiff offers stock awards to certain high performing employees, provided the employee
accepts a Restrictive Covenant Agreement (“RCA”) with more extensive terms than the SRA and
NDA. (Compi.

¶

16). Defendant accepted a restricted stock award in 2011, 2012, 2013, 2015,

2016, and 2017. (Cornpl.
with Plaintiff (Compl.

¶ 18,20).

¶ 18, 20).

On each of those occasions. Defendant entered into an RCA

The most recent RCA that Defendant signed was on September

1, 2017 (“2017 RCA”), which stated that Defendant would not “participate in any manner with a
Competing Business anywhere in the Territory where doing so [would] require [Defendant] to (1)
provide the same or substantially similar services to a Competing Business as those which [she]

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provided to [Plaintiff] while employed, or (ii) use, disclose or disseminate [Plaintiffs]
Confidential Information or trade secrets.” (ECF No. 1-1 at Ex. C (“2017 RCA”)

¶

3). The

“Territory” tinder the RCA is defined as “the geographic area where [Defendant] worked,
represented [Plaintiff], or had Material Business Contact with [Plaintiffs] Clients in the two (2)
year period preceding the termination of [Defendant’s] employment with [Plaintiff].” (2017 RCA

¶J

1(j)). The 2017 RCA also restricted Defendant from soliciting business from “any Client” of

Plaintiff or encouraging “any Clients” to cease doing business with Plaintiff for a period of one
year after Defendant stops working for Plaintiff. (2017 RCA ¶ 4(a)). The same restrictions applied
to “any Business Partner” of Plaintiff. (2017 RCA

¶ 4(b)).

The 2017 RCA contained a detailed

non-disclosure clause for Plaintiffs confidential information and trade secrets, inclLtding any hard
copy or electronic material in Defendant’s possession. (2017 RCA

¶ 6).

Defendant separated from Plaintiff on December 27, 2017. (Cornpl. ¶ 28). Soon thereafter,
Plaintiff learned that Defendant accepted a position in the Greater Boston area with The Ultimate
Software Group, Inc. (“Ultimate”). a direct competitor of Plaintiff (Cornpl.

¶ 29).

Plaintiff claims

that Defendant is selling the same type of product and performing the same or substantially similar
job functions for Ultimate as those she did for Plaintiff in the same geographic territory, which is
expressly forbidden under the SRA. NDA, and RCAs. (Compi.

¶ 31—32).

Plaintiff further claims

that Defendant “has used or disclosed or will inevitably use and disclose” Plaintiffs proprietary
inforniation. (Compi. ¶ 34). Upon learning of Defendant’s employment at Ultimate, Plaintiff sent
Defendant a letter on December 29, 2017, which outlined her obligations and requested that she
provide details regarding her new employment, as reqctired by the 2017 RCA. (Cornpl.

¶

35).

Defendant did not deny working in the same territory as she did for Plaintiff, but responded that
she “has not and will not solicit business from any of the approximately 30 clients to whom she
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successfully sold [Plaintiffs] Comprehensive Services’ and ‘[s]he will not otherwise solicit
business from any [of Plaintiffs] clients with whom she dealt.” (Compi.

¶ 36).

Plaintiff then brought this action on february 9,2018, alleging (1) Breach of Contract, (2)
Breach of Duty of Loyalty, and (3) Unfair Competition. (Compi.

¶] 44—67).

Plaintiff requests

damages, a temporary restraining order, and a preliminary injctnction. (Cornpl. at p. 19—21).
Plaintiff seeks to enjoin Defendant from working for Ultimate for a period of twelve months, using
or disclosing Plaintiffs confidential proprietary or trade secret information, interfering in any way
with Plaintiffs current or prospective clients, or breaching any loyalty obligation she has towards
Plaintiff (Compi. at p. 19—21). Plaintiff also requests that the Court grant a temporary restraining
order and a preliminary injunction enjoining Defendant from disposing of any paper or electronic
documents relevant to this litigation and ordering Defendant to return any and all confidential,
proprietary, or trade mark information or property in her possession. (Compl. at p. 19—2 1).
II.

LEGAL STANDARD

Preliminary injunctions are extraordinary remedies that are not routinely granted. Kos
Pharm., Inc. v. Andrx Coip., 369 f.3d 700, 708 (3d Cir. 2004) (citing Am. Tel. & Tel. Co. v.
Winback & Conserve Program, Inc., 42 f.3d 1421, 1426—27 (3d Cir. 1994)). The decision to grant
a preliminary injunction is within the sound discretion of the district court. eBay Inc., et a!. v.
Mercfxchange, L.L.C., 547 U.S. 388, 391 (2006) (citing Weinberger v. Romero-Barcelo, 456 U.S.
305, 320 (1982)).

In deciding whether injunctive relief should be granted, the Court must

determine fi) that the movant has a reasonable likelihood of success on the merits, (ii) that the
denial of injunctive relief will result in irreparable harm to the movant, (iii) that granting injunctive
relief for the movant will not result in even greater harm to the non- movant; and (iv) that the
public interest favors granting the preliminary injunction. Kos Pharm., 369 f.3d at 708 (citing
Allegheny Energy, Inc. v. DQE, Inc., 171 f.3d 153, 158 (3d Cir. 1999)).
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The movant bears the burden of demonstrating that the injunction it seeks should issue. Id.
To obtain a preliminary injunction, the moving party must demonstrate both a likelihood of success

and the probability of irreparable harm if relief is not granted. Morton v. Beyer, $22 F. 2d 364,
367 (3d Cir. 19$7) (quotations omitted); see also In re Arthur Teacher’s franchisee Litig., 6$9
F.2d 1137, 1143 (3d Cir. 19$2) (“[W]e cannot sustain a preliminary injunction ordered by the
district court where either or both of these prerequisites are absent.”)
III.

ANALYSIS

Based on the following analysis, the Court grants Plaintiff a preliminary injunction
enjoining Defendant from violating the terms and conditions of the SRA and NDA by soliciting
Plaintiffs clients (as defined in those agreements) or using or disclosing any of Plaintiffs
confidential or proprietary information.

However, the Court will not enjoin Defendant from

working for Ultimate or soliciting Plaintiffs clients that are generally not covered by the SRA and
NDA. This is because Plaintiff can only show a likelihood of success on the merits for its claims
pertaining to the SRA and NDA, and not for its claims pertaining to the RCAs.
A. Likelihood of Success on the Merits

To grant a preliminary injunction, the movant must first show a reasonable likelihood of
success on the merits. Kos Pharm., 369 F.3d at 70$ (citing Allegheny Energy, Inc., 171 F.3d at
15$). As explained above, the agreements at issue here are the SRA, NDA, and RCAs. (See supra
Part I). An agreement that restricts an employee’s ability to compete with her employer afler the
employee’s termination or resignation will generally be found to be reasonable, and thus
enforceable, “where it simply protects the legitimate interests of the employer, imposes no undue
hardship on the employee, and is not injurious to the public.” Solari Inthis., Inc. v. Malady, 55
N.J. 571, 576 (1970).

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Plaintiff has not shown that its claims regarding the RCAs are likely to succeed on the
merits. The parties dispute whether there is a legitimate interest for the RCAs, because they protect
against the same harm already covered by the SRA and NDA, i.e., divulging trade secrets, doing
damage to Plaintiffs good will, or soliciting Plaintiffs clients. (ECF No. 9 at 16; ECF No. 17 at
6). Another case in this District considered the validity of similar stock-option non-competes and
applied New Jersey law to find that the agreements did not have a legitimate purpose. Laid/mi’,
Inc.

i.

Student Transp. of Am., Inc., 20 F. Supp. 2d 727, 762—63 (D.N.J. 199$). The Court in

Laidktw based its decision on the fact that the employees of the plaintiff were not required to sign
the stock-option non-competes in order to obtain employment, confidential information, or access
to clients. Id. at 763. Similarly in this case, Plaintiff does not require its employees to enter into
the RCAs and does not even offer the RCAs to all of its employees, (Compi.

¶ 16), which is further

evidence that the purpose behind the RCAs is not to protect Plaintiffs legitimate interests but
rather to decrease competition.
The RCAs may also impose an undue hardship on Defendant. Plaintiff argues that the
RCAs do not impose an undue hardship because they are limited to the geographic territory where
Defendant worked for Plaintiff and are only in effect for one year. (ECF No. 3-2 at 17). However,
the Court is not convinced by this argument, because the RCAs apply broadly to a/I of Plaintiffs
current or prospective clients regardless of whether Defendant had contact with those clients,
(2017 RCA 114(a)). See Platinum Mgmt., Inc. v. Dahms, 285 N.J. Super. 274,298 (Law Div. 1995)
(holding that a restrictive covenant was overbroad to the extent that it covered prospective clients
that only the plaintiff had solicited, not the defendant).
The Court is also not convinced of the success. or lack thereof, of the argument that the
RCAs are unreasonable restraints on trade under collateral estoppeh which was discussed in the

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parties’ briefs and at oral argument. (ECF No. 9 at 22—31; ECf No. 17 at 7—10; Hr’g Tr. at 24:1—
26:3. 47:19—48:11; ECF No. 19). The fact that there are decisions both upholding and rejecting
the RCAs does not make it any more likely that Plaintiff shall succeed on the merits, which is all
the Court is currently considering. Though the RCAs may be found to be enforceable at trial,
Plaintiff has not set forth sufficient evidence to carry its burden at this juncture. See Acierno v.
New Castle Ct-i’., 40 F.3d 645, 653 (3d Cir. 1994) (“A party seeking a mandatory preliminary
injunction that will alter the status quo bears a particularly heavy burden in demonstrating its
necessity.”) (citing Punnett v. Carter, 621 E.2d 578, 582 (3d Cir. 1980)). Accordingly, in the
absence of a likelihood of success on the merits, Defendant cannot be enjoined from working for
Ultimate as the RCAs may require or from soliciting Plaintiffs clients as that term is defined in
the RCAs.
However, Plaintiff has shown that its claims regarding the SRA and NDA are likely to
succeed on the merits. The SRA and NDA are intended to protect Plaintiffs confidential and
proprietary infonnation and client relationships, (Compl.

employer interests.

¶

11, 26), which qualify as legitimate

HR Sta/jIng Consultants, LLC v. Butts, Civ. No. 2:15-3155, 2015 WL

3492609, at *8 (D.N.J. May 29, 2015) (citing Campbell Sottp Co. v. Desatnick, 5$ F. Supp. 2d

477, 489 (D.NJ. 1999)). The SRA and NDA are also narrowly tailored to clients that Defendant
dealt with or was exposed to. (SRA ¶ 4(a); NDA

¶ 3(b)).

Moreover, Defendant acknowledged at

the hearing that the SRA and NDA are enforceable against her. (Hr’g Tr. at 41:10—21). Therefore,
Plaintiff meets the first element for a preliminary injunction enjoining Defendant from violating
the SRA and NDA. The Court will continue to analyze Plaintiffs motion as it pertains to these
two agreements, but not as it pertains to the RCAs.

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B. Irreparable Harm

The second element for a preliminary injunction is that the denial of injunctive relief will
result in irreparable harm to the movant. Kos

Phann.,

369 f.3d at 70$ (citing Allegheny Energy,

Inc., 171 F.3d at 15$). To warrant the issuance of an injunction, a plaintiff must establish more
than a risk of irreparable injury, but rather must demonstrate a “clear showing of immediate
irreparable injury.” Hoxworth v. Blinder, Robinson & Co., 903 f.2d 186, 205 (3d Cir. 1990)
(quoting EC’RI v. McGraw—Hill, Inc., $09 F.2d 223, 226 (3d Cir. 1987)) (emphasis added).
Plaintiff claims that the irreparable harm it will suffer is the loss of current and prospective clients,
confidential and proprietary information, and its reputation or “good will.” (Compl.

¶

38; ECF

No. 3-2 at 19—21).
The Court is not convinced that the loss of current and prospective clients is an irreparable
hann, considering any loss of clients can be remedied through money damages. InstantAir freight
Co. v. Cf. Airfreight, Inc., 882 F.2d 797. 801 (3d Cir. 1989) (“In order to demonstrate irreparable
harm the plaintiff must demonstrate potential harm which cannot be redressed by a legal or an
equitable remedy following a trial.”). The amount that Plaintiff is entitled to recover can be
quantified through discovery. For example, discovery can reveal how many products would have
been sold, and how much money Plaintiff lost. Therefore, the Court does not find the loss of
clients to be an irreparable hanm
However, the Third Circuit recognizes the loss of good will as an irreparable hann. Pappan
Enters., Inc. v. Hardee ‘s food Sys., Inc., 143 F.3d 800, 805 (3d Cir. 1998) (citing Opticians Ass ‘n

of Am. v. hidep. Opticians of Am., 920 f.2d 187, 195 (3d Cir. 1990)). It is true that Defendant’s
solicitation of Plaintiffs clients would harm Plaintiffs good will, as clients would “likely view
any ‘defection’ of employees to a competitor in a negative light.” AD?, LLC v. Jacobs. Civil

9

Action No. 2:15-3710 (JLL)(JAD), 2015 WL 4670805, at *7 (D.N.J. Aug. 5, 2015). Ultimate’s
solicitation of Plaintiffs clients is ongoing, (Hr’g Tr. at 29:22—30:4), necessitating a preliminary
injunction. Jacobs, 2015 WL 4670805, at *7•
Furthermore. the disclosure of confidential and proprietary information is also recognized
as an irreparable hanm Laid/au’, Inc., 20 F. Supp. 2d at 766. Plaintiff alleges that Defendant
possessed business methods, pricing and marketing strategies, as well as other confidential and
proprietary infonnation which will directly aid Ultimate at Plaintiffs detriment. (ECF No. 3-2 at
20). Plaintiff further alleges that Defendant’s disclosure of this information is inevitable. (Cornpl.

¶ 34).

The banns associated with the loss of good will and proprietary and confidential information

would be prevented by enjoining Defendant

from

violating the SRA and NDA. (See SRA

¶

4

(restricting Defendant from soliciting clients or divulging confidential or proprietary information);
NDA

¶J

1—3 (same)). Therefore, the Court finds that Plaintiff has met the second element for a

preliminary inj unction.
C. Balance of the Interests

To meet the third factor, the granting of injunctive relief for the movant must not result in
even greater harm to the non-movant. KosPhctrm., 369 F.3d at 708 (citingA//eghenvEnergy, Inc.,
171 f.3d at 158). While the Court is satisfied that Defendant should be enjoined from soliciting
Plaintiffs clients, using or disclosing its proprietary information, and violating any other terms
under the SRA and NDA, it will not go so far as to enjoin Defendant from working for Ultimate.
By enjoining Defendant from soliciting Plaintiffs clients that Defendant was involved with or
exposed to, as well as enjoining her from disclosing confidential or proprietary information, the
Court will accomplish the objective of the SRA and NDA, which is to prevent harm to Plaintiffs
business caused by the loss of clients, information, and good will. (Compl.

10

¶

11, 26). The SRA

11, 26). The SRA and NDA do not restrict Defendant from being employed by a competitor. (See
generally SRA; NDA). Requiring Defendant to quit her job would clearly result in significant
han-n to her and would be unnecessary in light of the fact that the harm to Plaintiff envisioned in
the SRA and NDA can be avoided by less restrictive means, i.e., this preliminary injunction. The
restraints imposed by the SRA and NDA are presumptively reasonable considering Defendant
concedes that they are enforceable against her. (Hr’g Tr. at 41:10—21). Therefore, the Court’s
decision to enjoin Defendant from soliciting Plaintiffs clients as that term is defined in the SRA
and NDA and from using or disclosing Plaintiffs proprietary information, but not to enjoin her
from working at Ultimate, strikes a balance between the parties’ interests while producing a result
that will minimize the overall harm to both parties.
D. Public Interest

Although this matter is a private dispute between private parties, the Court nevertheless
finds that issuance of an injunction is in the public interest in certain ways. See Score 3d., Inc. v.
Upper Deck Co., 959 F.Supp. 234, 240 (D.N.J.1997) (stating that an injunction is in the public
interest where “[i]t will prevent one company from interfering with the legally protected
contractual rights of another.”). If the SRA and NDA are not enforced in some regard, then the
entire purpose of the agreements is undenriined. This Court has previously held, and remains
cognizant of the fact, that “U]udicial enforcement of non-competition provisions of employment
contracts serves the public interest by promoting stability and certainty in business and
employment relationships.” Wright Med. Tech., Inc. v. Somers, 37 F. Supp. 2d 673, 684 (D.N.J.
1999) (citing AmeriGas Propane, Inc. v. Crook, $44 F. Supp. 379, 390 (M.D. Tenn. 1993)).
Though there is a public interest in free competition, it is outweighed by the public interest in
upholding some form of the agreements.

Barniasters Bartending Sc/i., Inc. v. Authentic

11

Bartending Sc/i., Inc., 931 F. Supp. 377, 387 (E.D. Pa. 1996). Therefore, the Court finds that

granting a preliminary injunction against Defendant is in the public interest.
IV.

CONCLUSION

For the aforementioned reasons, Plaintiffs Motion for a Temporary Restraining Order and
a Preliminary Injunction is hereby granted in part and denied in part. Specifically, Plaintiffs
Motion for a Temporary Restraining Order is denied.

Plaintiffs Motion for a Preliminary

Injunction is granted, except Defendant is not enjoined from working for Ultimate or soliciting
Plaintiffs clients generally not covered by the SRA and NDA. An appropriate Order follows this
Opinion.

Date: April 2O18

J S L.LI ARES
ef Judge, United States District Court

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