New Jersey Court Enforces Non Compete Clauses Contained in a “Clickwrap” Agreement

In a recent New Jersey federal case, ADP LLC v. Lynch, 3d Cir. (Ambro, U.S.C.J.), the Third Circuit declined to lift an injunction prohibiting two former employees of ADP from soliciting its clients on behalf of a competitor. The injunction partially enforced non-compete agreements that Jordan Lynch and John Halpin agreed to online in what is commonly referred to as a “clickwrap” agreement. A clickwrap agreement is a type of contract in which a user must agree to terms and conditions prior to using the product or service. These are commonly used in the software or technology industry. It is interesting to see a court confirm its enforceability in the employment context.

Messrs. Lynch and Halpin each participated in ADP’s stock award plan for five consecutive years. To participate, they had to click on an electronic box to acknowledge that they had read related documents. Those documents included restrictive covenants which state that the employee cannot (1) solicit certain clients and prospective clients of ADP for one year after they stopped working for the company; (2) disclose any of ADP’s confidential information; or (3) use ADP’s confidential information regarding the identity of the company’s current, past or prospective clients. Mr. Lynch also signed a separate agreement, containing similar restrictions.

The employees resigned their sales positions at ADP and joined its direct competitor, Ultimate Software Group (“USG”). ADP sued Mr. Halpin and Mr. Lynch, asserting that they had violated their restrictive covenants. It also sought a preliminary injunction to prohibit them from working for USG and from soliciting ADP’s clients. Mr. Halpin and Mr. Lynch claimed that they never actually read or agreed to the restrictive covenants and therefore, the court should decline to enforce them as written.

The District Court, on June 30, 2016, granted a partial injunction, ruling that the employees had clicked on the box indicating that they read the documents related to the stock award plan and therefore they could not claim they did not actually read those documents. The Court further ruled that even though the two employees merely acknowledged that they had read the documents (and did not indicate specifically that they agreed to the terms), they were bound by the restrictions since the documents themselves make it clear that they were agreeing to them.

The Court issued a partial injunction ordering the employees not to solicit any of ADP’s current customers or any of its prospective customers who they learned about while they were working for ADP. Moreover, it enjoined them from using any of ADP’s confidential or proprietary information.

It is important to note that the Court did not prohibit Mr. Lynch or Halpin from working for USG at this preliminary injunction stage, stating that this would be too “severe” a restriction at this early phase of litigation. The Third Circuit panel affirmed the issuance of the preliminary injunction.