3rd Circuit Enforces Restrictive Covenants Tied to Electronic Acceptance of Stock Award
On February 7, 2017, the Third Circuit affirmed a partial preliminary injunction order barring two former ADP employees from soliciting customers for their new employer for one year. This decision is notable as it affirmed the propriety of electronic acknowledgements and rejected a creative challenge to ADP’s electronic signature system. See ADP, LLC v. Lynch, 2-16 Civ. 01053 and 2-16 Civ. 01111, (3rd Cir. February 7, 2017).
While employed at ADP, two former ADP employees, Jordan Lynch and John Halpin, accepted incentive stock awards that were offered to select employees based on performance. They were offered and accepted the stock awards on five separate occasions. In order to accept the award on each occasion, Lynch and Halpin accessed an ADP webpage and confirmed through two click-through screens that they read all associated documents (award plan, award agreement, and noncompete agreement). After confirming they had “read all the documents,” they clicked “Accept Grant.” The noncompete agreement prohibited Lynch and Halpin from joining a competitor for 12 months and from soliciting any business from current or prospective ADP clients for the same time period. Lynch and Halpin subsequently resigned from ADP, started working for a competitor, and allegedly solicited ADP clients.
The Court was unpersuaded by Lynch and Halpin’s textual argument – namely, that because the click through screens only stated they “read” the documents (not that they “agreed” or “accepted” or “acknowledged” the documents) they were not bound by the noncompete agreement. The Court agreed with the District Court and held that the noncompetes were a condition of accepting the stock award (which was plainly set forth in the documents that they had “read”) and, therefore, by accepting the award the former ADP employees agreed to the noncompete agreement. The Court went on to affirm the lower court’s grant of a partial preliminary injunction order that allowed Lynch and Halpin to continue working for the competitor, but restricted them from soliciting ADP’s current clients and those prospective clients about which they acquired knowledge for one year.