                                  PRECEDENTIAL

 UNITED STATES COURT OF APPEALS
      FOR THE THIRD CIRCUIT
          _______________

          Nos. 18-1796 & 18-2603
            _______________

                 ADP, LLC,
                       Appellant

                      v.

           NICOLE RAFFERTY
            _______________

     On Appeal from the District Court
               of New Jersey
        (D.N.J. No. 2:18-cv-01922)
Honorable Jose L. Linares, U.S. District Judge
             _______________

                 ADP, LLC,
                       Appellant

                      v.

              KRISTI MORK
             _______________

     On Appeal from the District Court
             of New Jersey




                      1
               (D.N.J. No. 2:17-cv-04613)
      Honorable Claire C. Cecchi, U.S. District Judge
                   _______________

                Argued: September 6, 2018

Before: HARDIMAN, KRAUSE, and BIBAS, Circuit Judges

              (Opinion Filed: April 26, 2019)

Harris S. Freier
494 Broad Street
Newark, NJ 07102

Timothy J. Lowe       [Argued]
James J. Giszczak
McDonald Hopkins
39533 Woodward Avenue
Bloomfield Hills, MI 48304

      Counsel for Appellant

John H. Schmidt, Jr. [Argued]
Lindabury McCormick Estabrook & Cooper
53 Cardinal Drive
P.O. Box 2369
Westfield, NJ 07091

      Counsel for Appellees Nicole Rafferty and Kristi Mork
                    _______________

               OPINION OF THE COURT
                   _______________




                              2
KRAUSE, Circuit Judge.

I.     Introduction

        In this appeal, we must determine whether certain
restrictive covenants, which high-performing employees enter
into as a condition of a stock award, constitute an
impermissible restraint on trade under New Jersey law. We
conclude that these restrictive covenants are not unenforceable
in their entirety because they serve a legitimate business
interest, but they may place an undue hardship on employees
because they are overbroad. Accordingly, we will remand for
the District Court to consider whether and to what extent it is
necessary to curtail the restrictive covenants’ scope, which is
the approach prescribed by the New Jersey Supreme Court
when confronted with overbroad restrictive covenants such as
these.

II.    Factual Background

        ADP, LLC (ADP) is a human capital management
company that sells technology products and services related to
payroll, human resources, benefits, talent management and
recruiting to customers worldwide. ADP imposes restrictive
covenants on its sales employees1 in two layers. The first layer,
which applies to all employees and includes a Sales
Representative Agreement (SRA) and a Non-Disclosure
Agreement (NDA) entered into at the time of hire, is a

       1
         Throughout its briefs, ADP refers to these sales
employees interchangeably as sales “associates” and
“employees.” Hereinafter, for simplicity’s sake, we will refer
to them as “employees.”




                               3
condition of employment at ADP. The SRA and NDA prohibit
ADP employees from, among other things, soliciting any ADP
“clients, bona fide prospective clients or marketing partners of
businesses of [ADP] with which the Employee was involved
or exposed” for one year after termination. Rafferty JA 42.

        The second layer functions differently.            High-
performing ADP employees who meet their sales targets are
eligible to participate in a stock-option award program, but
only if they agree to an additional restrictive covenant known
as the Restrictive Covenant Agreement (RCA). Participation
by eligible employees in the stock option program, in other
words, is voluntary but conditioned on their assent to the terms
of the RCA. ADP does not attempt to impose the RCA on other
employees or in circumstances outside of the stock award
program. It is not imposed, for instance, as a condition of
initial or continued employment or in connection with other
employment milestones such as a promotion or transfer. Nor
does it entitle ADP employees to any employment benefits
beyond the compensation of the stock option award itself, such
as more or different training or access to proprietary
information.

       The RCA is undisputedly more onerous than the SRA
and NDA, and makes it more difficult for former employees
bound by its restrictions to compete with ADP upon their
separation from the company. Specifically, the RCA contains
a strengthened non-solicitation provision (Non-Solicitation
Provision), which prohibits employees—for a period of one
year following their termination (voluntary or involuntary)—
from soliciting any ADP clients to whom ADP “provides,”
“has provided” or “reasonably expects” to provide business
within the two-year period following the employee’s




                               4
termination from ADP. Rafferty JA 78. Thus, unlike the SRA,
which only prohibits solicitation of those ADP clients with
whom the former employees “w[ere] involved or exposed,”
Rafferty JA 42, the RCA also prohibits solicitation of all
current and prospective ADP clients. And while the SRA
limits former employees’ solicitation of ADP’s “marketing
partners,” Rafferty JA 42, the RCA prevents former employees
from soliciting ADP’s “Business Partners,” which is defined to
include “referral partners” in addition to “marketing partners,”
Rafferty JA 76, 78.2

        The RCA also contains a non-compete provision that is
absent from the SRA and NDA (Non-Compete Provision): For
a period of one year following their termination, employees
will not “participate in any manner with a Competing Business
anywhere in the Territory where doing so will require [them]
to [either] provide the same or substantially similar services to
a Competing Business as those which [they] provided to ADP
while employed,” or “use or disclose ADP’s Confidential
Information or trade secrets.” Rafferty JA 78. The term
“Territory” is defined as the “geographic area” where the
employee worked or had contact with ADP clients in the two
years prior to her termination. Rafferty JA 77.


       2
         The SRA’s non-solicitation provision states that
former employees shall not “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 ADP, whereas the RCA’s Non-Solicitation
Provision states that former employees shall not “engage,
contract with, solicit, divert, appropriate or accept any business
from any Business Partner” of ADP. Rafferty JA 42, 78.




                                5
       Appellees Nicole Rafferty and Kristi Mork are both
former employees of ADP who, shortly after voluntarily
leaving ADP, began working at Ultimate Software Group
(Ultimate), a direct competitor of ADP. Rafferty and Mork
each signed the SRA and NDA at the outset of their
employment in Boston and Chicago, respectively, and each
were eligible for and accepted restricted stock awards pursuant
to the RCA over several consecutive years.3

III.   Procedural History

       After ADP learned that each of Appellees joined
Ultimate upon leaving, it filed a motion for preliminary
injunction against each of Rafferty and Mork in the District of
New Jersey, seeking enforcement of the SRA, NDA, and RCA,
and alleging breach of contract, breach of duty of loyalty, and
unfair competition. Their cases were consolidated only for
purposes of this appeal.

       A.    District Court Proceedings in ADP v. Rafferty
             (No. 18-cv-1922)

       In ADP’s action against Rafferty in the District of New
Jersey, which was assigned to Judge Linares, ADP sought to
justify the imposition of all three restrictive covenants.
Relying on the sworn statement of an ADP executive, ADP

       3
        We use the term “RCA” going forward to refer to the
2015 RCA because, of the various iterations to which Rafferty
and Mork agreed to be bound over the years, the 2015 version
contains the most restrictive terms and, as the RCAs “don’t
supersede one another,” those terms would “still be in effect.”
Rafferty Dkt. No. 28 at 11.




                              6
argued that the SRA and NDA, for their part, contain
reasonable restrictions designed to protect “the client
relationships and the goodwill that sales associates will
develop and help develop in the course of their job duties.”
Rafferty JA 146. The RCAs, it urged, are similarly
reasonable—albeit “more extensive”—because those
employees that qualify for the stock award “demonstrate that
they maintain the strongest personal relationships with their
contacts at ADP and ADP’s clients and prospects,” “generally
are involved with and have the most information about the
largest number of ADP’s clients and prospects,” and have
“demonstrated the greatest ability to attend to the specialized
needs of ADP’s clients quickly and with continuity.” Rafferty
JA 147. Thus, because the loss of high-performing employees
to a competitor poses a “particularly high risk to ADP with
respect to interference with customer and prospect [sic]
relationships,” ADP maintained that the “heightened restrictive
covenants in the RCA provisions” are justified. Rafferty JA
148.

        After a hearing, the District Court granted some of the
relief requested by ADP.4 Acknowledging Solari Industries,

       4
         While Judge Linares cited his prior decision in ADP,
LLC v. Jacobs, No. 2:15-3710 (JLL) (JAD), 2015 WL 4670805
(D.N.J. Aug. 5, 2015)—where he came to the opposite
conclusion as to the enforceability of the RCAs and held that,
“prospective clients aside, [ADP] ha[d] articulated all of its
corporate interests in enforcing the remaining non-competition
aspects of the [RCA],” id. at *5—he did not distinguish Jacobs
from the instant case nor explain the reason for this divergent
outcome.




                              7
Inc. v. Malady, 264 A.2d 53 (N.J. 1970), where the New Jersey
Supreme Court articulated factors to determine whether a post-
employment restrictive covenant is enforceable—including
whether it “[1] simply protects the legitimate interests of the
employer, [2] imposes no undue hardship on the employee, and
[3] is not injurious to the public,” id. at 56—the District Court
concluded that the RCAs were unenforceable per se. Citing
Laidlaw, Inc. v. Student Transp. of Am., Inc., 20 F. Supp. 2d
727, 762-63 (D.N.J. 1998), it reasoned that because ADP “does
not require its employees to enter into the RCAs and does not
even offer the RCAs to all of its employees,” the “purpose
behind the RCAs is not to protect [ADP]’s legitimate interests
but rather to decrease competition.” ADP, LLC v. Rafferty, No.
18-1922 (JLL), 2018 WL 1617705, at *3 (D.N.J. Apr. 2, 2018).
The Court also suggested that the RCAs “may also impose an
undue hardship” on Rafferty because, notwithstanding its
geographic and temporal scope, the “RCAs apply broadly to
all of [ADP]’s current or prospective clients regardless of
whether [Rafferty] had contact with those clients. . . .” Id. at
*4 (emphasis in original).

       As to the enforceability of the SRA and NDA, however,
the District Court reasoned that ADP had shown a likelihood
of success because, under Solari, they serve a legitimate
business interest in that they “are intended to protect [ADP]’s
confidential and proprietary information and client
relationships,” and are “narrowly tailored” to that end.5 Id.

       5
        The District Court further concluded that the SRA and
NDA satisfied the other elements of the preliminary injunction
test: Denial of relief would cause ADP irreparable harm in the
form of “loss of good will,” Rafferty, 2018 WL 1617705, at *5;
the balance of the interests tipped towards ADP because




                               8
Because Rafferty had conceded at a hearing that the SRA and
NDA were enforceable against her, the District Court did not
further elaborate as to how those agreements satisfied the
Solari factors.

       B.     District Court Proceedings in ADP v. Mork (No.
              17-cv-4613)

       In ADP’s action against Mork, assigned to Judge
Cecchi, ADP defended the enforceability of the RCAs on the
same grounds. Specifically, it put forth a declaration to support
its position that those who receive restricted stock “have
extensive contact with ADP clients because they sell the most
ADP products and service[s] and are the most successful sales
associates,” Mork JA 103, and “maintain the closest personal
relationships with the key contacts and personnel” of ADP’s
clients and prospects, id., and thus “possess the greatest
potential to disrupt ADP’s relationships with its clients and
prospective clients, [and] to harm the goodwill ADP has
generated in the market,” id.

        The District Court rejected those arguments, adopting
Judge Linares’ reasoning in Rafferty in full, and concluding
that “due to the RCA’s problematic nature and questions
concerning their ultimate legitimacy as undue restraints on
trade, [ADP] has not shown a substantial likelihood of success
on the merits as to its claims under the RCAs.” ADP, LLC v.
Mork, No. 17-4613 (CCC-MF), 2018 WL 3085215, at *4
(D.N.J. June 22, 2018).



Rafferty would not be required to quit her job; and the issuance
of the injunction was in the public interest.




                               9
IV.    Discussion

       We review the District Court’s denial of a preliminary
injunction for abuse of discretion and any underlying legal
questions de novo.6 Am. Tel. & Tel. Co. v. Winback &
Conserve Program, Inc., 42 F.3d 1421, 1427 (3d Cir. 1994).
The four-factor preliminary injunction standard requires the
moving party first to demonstrate a reasonable likelihood of
success and that it would likely suffer irreparable harm absent
an injunction. Reilly v. City of Harrisburg, 858 F.3d 173, 179
(3d Cir. 2017), as amended (June 26, 2017). If the moving
party makes this threshold showing, the court balances these
factors, along with the relative hardship that the grant or denial
of an injunction would inflict on the parties and the public
interest. Id. at 179; Holland v. Rosen, 895 F.3d 272, 285-86
(3d Cir. 2018).

       Applying New Jersey law, we conclude that both tiers
of ADP’s restrictive covenants further legitimate business
interests and otherwise comply with the state’s public policy.
Where, as here, a district court’s assessment of the merits rests
on “an erroneous view of the applicable law,” its denial of a
preliminary injunction cannot stand. Am. Tel. & Tel. Co., 42
F.3d at 1427 (citation omitted). Accordingly, we will vacate
the District Court’s order and remand for the District Court to
blue pencil the agreements and reconsider the four-factor
preliminary injunction standard.


       6
         The District Court exercised diversity jurisdiction
under 28 U.S.C. § 1332, and we have interlocutory jurisdiction
over the District Court’s denial of ADP’s motion for a
preliminary injunction under 28 U.S.C. § 1292(a).




                               10
       A.      New Jersey Law

        New Jersey has evolved from invalidating overbroad
restrictive covenants outright to presumptively “compress[ing]
or reduc[ing]” their scope “so as to render the covenants
reasonable.” Karlin v. Weinberg, 390 A.2d 1161, 1168 n.4
(N.J. 1978); see Maw v. Advanced Clinical Commc’ns, Inc.,
846 A.2d 604, 608-09 (N.J. 2004). Known as partial
enforcement or blue penciling,7 this rule favors granting “that
limited measure of relief within the terms of the
noncompetitive agreement” that (1) protects a legitimate
business interest, (2) does not unduly burden an employee, and
(3) adheres to the public interest. Solari, 264 A.2d at 61. As
detailed below, by eschewing a dichotomous choice between
enforcement and invalidation, New Jersey aims to fulfill a
restrictive covenant’s lawful objectives while nevertheless
ensuring that such agreements do not unreasonably hinder
competition or employee mobility. See Maw, 846 A.2d at 609.

        For more than a century, New Jersey has upheld
restrictive covenants in employment agreements, see Sternberg
v. O’Brien, 22 A. 348, 349-50 (N.J. Ch. 1891); Mandeville v.
Harman, 7 A. 37, 41 (N.J. Ch. 1886), but the state initially
applied an inflexible rule rendering overbroad covenants
completely unenforceable, Althen v. Vreeland, 36 A. 479, 481
(N.J. Ch. 1897) (reasoning that a restrictive covenant “if

       7
         As the name suggests, the term “blue penciling” at first
referred to rendering a restrictive covenant reasonable by
striking divisible portions, see Solari, 264 A.2d at 57, but in
New Jersey it has come to mean any tailoring of a restrictive
covenant, Cmty. Hosp. Grp., Inc. v. More, 869 A.2d 884, 892
n.3 (N.J. 2005).




                               11
enforced at all, it must be enforced according to its terms”).
The doctrine evinced a judicial reluctance to modify
agreements; under this view, “distill[ing] from the broad
generalities” in a restrictive covenant “narrower and more
meaningful restrictions would constitute no less than a
rewriting of the provision.” Hudson Foam Latex Prods., Inc.
v. Aiken, 198 A.2d 136, 141 (N.J. Super. Ct. App. Div. 1964);
see Mandeville, 7 A. at 38. Secondary doctrines lessened the
harshness of the complete-invalidation rule by allowing for the
enforcement of “divisible” clauses or subsets, see Creter v.
Creter, 145 A.2d 149, 153-54 (N.J. Super Ct. App. Div. 1958),
but these exceptions “exalted formalisms and rewarded artful
draftsmanships,” Solari, 264 A.2d at 60.

        In its seminal decision in Solari Industries, Inc. v.
Malady, 264 A.2d 53 (N.J. 1970), the New Jersey Supreme
Court jettisoned the complete-invalidation rule, permitting the
partial enforcement of restrictive covenants where consistent
with public policy. See 264 A.2d at 61. Under its prior
approach, the New Jersey Supreme Court recognized, courts
struck down restrictive covenants even when “justice and
equity seemed to cry out for the issuance of appropriately
limited restraints.” Id. at 60. That is, employers may “act in
full good faith” only to “find that the terms of the
noncompetitive agreement are later judicially viewed as
unnecessarily broad.” Id. at 56. Under these circumstances,
Solari recognized that tailoring overbroad restrictive covenants
better accorded with the parties’ written agreement than
wholesale invalidation. See id. In other instances, the
complete-invalidation rule encouraged courts to fully enforce
“sweeping noncompetitive agreements” where, if given a
choice, “they would have cut them down to satisfy the
particular needs at hand.” Id. at 60. Under the new approach,




                              12
while an employer that “extracts a deliberately unreasonable
and oppressive noncompetitive covenant” should receive no
benefit, courts should partially enforce an overbroad covenant
as long as it is “[1] reasonably necessary to protect [an
employer’s] legitimate interests, [2] will cause no undue
hardship on the defendant, and [3] will not impair the public
interest.” Id. at 56, 61.

        Following Solari, New Jersey courts have strived, if
possible, to salvage restrictive covenants, construing the
opinion’s three-part test as rarely justifying the total
invalidation of a restrictive covenant. See, e.g., Coskey’s
Television & Radio Sales & Serv., Inc. v. Foti, 602 A.2d 789,
793, 796 (N.J. Super. Ct. App. Div. 1992) (blue penciling a
restrictive covenant that had “devastating effects” on the
employee and “only limited” effects on the employer to permit
“substantially narrower enforcement”). As to what business
interests qualify as “legitimate,” Solari, 264 A.2d at 61, an
“employer has no legitimate interest in preventing competition
as such” or simply prohibiting an employee from exercising
her “general knowledge” within the industry, Whitmyer Bros.,
Inc. v. Doyle, 274 A.2d 577, 581 (N.J. 1971); see Ingersoll-
Rand Co. v. Ciavatta, 542 A.2d 879, 892-93 (N.J. 1988). But
New Jersey courts have stressed that employers have “patently
legitimate” interests in their trade secrets, confidential business
information, and customer relationships.8 Whitmyer Bros., 274

       8
         New Jersey has accepted that an employer may adopt
a restrictive covenant to protect some “highly specialized,
current information not generally known in the industry” even
if it does not qualify as a trade secret or confidential business
information. Ingersoll-Rand, 542 A.2d at 894; see Cmty.
Hosp. Grp., 869 A.2d at 897. This interest must be




                                13
A.2d at 581; Cmty. Hosp. Grp., 869 A.2d at 897. As long as
the restrictive covenant reasonably protects one of these
matters, the employer has adduced a “strong” business interest.
Ingersoll-Rand, 542 A.2d at 892.

        Most relevant here, in A. T. Hudson & Co., Inc. v.
Donovan, 524 A.2d 412 (N.J. Super. Ct. App. Div. 1987), the
Appellate Division enforced a management consulting firm’s
restrictive covenant to protect its former employee’s client
relationships. Id. at 416. The restrictive covenant, the court
recognized, safeguarded the “significant investment of time,
effort and money” the consulting firm expended “soliciting
clients and developing projects for their benefit.” Id. A
restrictive covenant protects this substantial investment in a
discrete set of clients, especially for employees who
maintained close, continual contact with the employer’s
business partners. See id. at 413-14, 416; Coskey’s, 602 A.2d
at 795.

       If a restrictive covenant reaches beyond an employer’s
legitimate interests, courts applying New Jersey law have
typically resorted to blue penciling to fulfill the contract’s
lawful ends. See Coskey’s, 602 A.2d at 796. For instance,
where a restrictive covenant covers products for which no trade
secrets existed, courts have blue penciled the agreement to
extricate them. See, e.g., Raven v. A. Klein & Co. Inc., 478
A.2d 1208, 1211-12 (N.J. Super. Ct. App. Div. 1984); see also
Saccomanno v. Honeywell Int’l, Inc., 2010 WL 1329038, at *5
(N.J. Super. Ct. App. Div. Apr. 7, 2010) (limiting an agreement
covering all “information” to just “trade secrets or confidential


“construe[d] narrowly,” Ingersoll-Rand, 542 A.2d at 894, and
does not pertain to the present dispute.




                               14
information”). Or, if a restrictive covenant seeks to protect
client relationships, courts have narrowed the covenant to
clients with which the employee interfaced. See, e.g., Saturn
Wireless Consulting, LLC v. Aversa, No. 17-1637 (KM/JBC),
2017 WL 1538157, at *12 (D.N.J. Apr. 26, 2017).

        The other two Solari factors—undue hardship and the
public interest—likewise rarely favor the complete
nullification of a restrictive covenant. The second Solari
factor’s focus on undue hardship lends itself to blue penciling,
not complete invalidation. Seldom could an employee credibly
contend that, even where an employer has proffered a
legitimate business purpose, any enforcement of a restrictive
covenant would pose an undue burden. See Ingersoll-Rand,
542 A.2d at 892 (a court must balance the employer’s interest
against the hardship inflicted). And under the “public interest”
factor, New Jersey has recognized only two professions for
which a client’s freedom to choose or the “uniquely personal”
nature of the relationship militate against enforcing any
restrictive covenant. Comprehensive Psychology Sys., P.C. v.
Prince, 867 A.2d 1187, 1190 (N.J. Super. Ct. App. Div. 2005)
(psychologists); see Jacob v. Norris, McLaughlin & Marcus,
607 A.2d 142, 151 (N.J. 1992) (attorneys); Cmty. Hosp. Grp.,
869 A.2d at 895 (noting that “[e]xcept for attorneys and . . .
psychologists, our courts have consistently utilized a
reasonableness test to determine the enforceability of
restrictive covenants” (internal citations omitted)).

       Simply put, New Jersey accepts that “non-compete
agreements are a common part of commercial employment,”
and its Solari framework “recognizes that noncompete
agreements can serve a useful purpose so long as the agreement
is not unreasonable.” Maw, 846 A.2d at 609. To ensure that




                              15
such agreements remain reasonable, New Jersey courts do not
hesitate to blue pencil a covenant but will rarely invalidate one
in full. See, e.g., Cmty. Hosp. Grp., 869 A.2d at 899-900.

       B.     Application to the RCA

       Mindful of New Jersey’s strong preference for blue
penciling, we turn to whether ADP’s second tier of restrictive
covenants, the RCA, is wholly invalid. In evaluating the RCA,
we consider (1) whether ADP has a legitimate business interest
in imposing the RCA in exchange for participation in its stock-
award program; (2) if so, whether that legitimate business
interest is negated because the RCA, which is imposed on a
subset of ADP employees, is layered on top of the SRA and
NDA, which are imposed on all employees; (3) whether the
breadth of the RCA imposes a level of hardship on employees
so great as to render it entirely unenforceable; and (4) whether,
on balance, the RCA is injurious to the public.

              1.     The RCA Serves a Legitimate Business
                     Interest

        The enforceability of the RCA, a supplemental layer of
restrictive covenants that are imposed on only those ADP
employees who qualify for and accept ADP’s stock-option
award, depends on whether it “simply protects the legitimate
interests of [ADP].” Solari, 264 A.2d at 56. Appellees
concede that ADP has a legitimate interest in protecting its
client relationships by imposing the more modest restrictions
set forth in the SRA and NDA on all employees, but argue that
it has no legitimate interest in imposing the “more onerous
RCAs” on a small group of high-performing employees




                               16
because “ADP’s legitimate interests were fully protected by
the SRA and NDA.” Rafferty’s Br. 19. We disagree.

        The preservation of client relationships and the
goodwill they generate are among the business interests that
New Jersey courts consistently recognize as legitimate and
worthy of protection. See Whitmyer, 274 A.2d at 581; A. T.
Hudson & Co., 524 A.2d at 415. As a client services business,
ADP’s viability depends on its ability to attract—and retain—
its clients. And by setting sales goals for its employees and
identifying the subset of employees that meet or exceed those
goals, ADP has the ability to empirically measure which of its
employees have more extensive client contact. Employees can
achieve this more extensive client contact in one of two ways—
by virtue of selling to a greater number of customers or by
selling more products to a smaller number of customers. Either
way, post-termination competition from those employees or
their solicitation of ADP’s clients and Business Partners would
pose a greater threat to ADP’s business than would that of
employees who failed to meet their sales goals and thus,
necessarily, have less contact with ADP’s clients. ADP
therefore has a legitimate business interest in imposing the
RCA on this subset of employees, and the RCA’s heightened
restrictive covenants, over and above those in the SRA and
NDA, are reflective of the greater damage those employees
could inflict on ADP upon their departure.

             2.     Selective Imposition of the RCA Does Not
                    Negate ADP’s Legitimate Business
                    Interests

      Appellees additionally argue, and the District Courts
agreed, that any legitimate interest in protecting client




                              17
relationships that the RCA may serve is negated by virtue of
the fact that it is selectively imposed on a subset of ADP
employees as a second layer of restrictive covenants, and is not
conditional of anything other than receipt of the stock award
itself. They argue that because the acceptance of the RCA was
not a condition of initial or continued employment, it did not
entitle the employees to access any “additional” or “different”
confidential information, such as client lists, Rafferty Br. 19-
20, and was not tied to any specific employment milestones,
the imposition of the RCA bespeaks an intent to “prevent[]
competition as such,” Whitmyer, 274 A.2d at 581, rendering
any proffered legitimate business interest mere pretext.

        Appellees’ argument largely relies on the reasoning set
forth in Laidlaw, which held that a restrictive covenant tied to
a stock-option award was an unenforceable restraint of trade
under New Jersey law because its “primary purpose” was “to
buy out potential competition.” 20 F. Supp. 2d at 763.
Framing the issue in colloquial terms, the district court noted
that businesses typically require prospective employees to sign
restrictive covenants that say, in effect:

       We want to hire you. But if you come work for
       us, you will obtain confidential information and
       develop customer relationships while working
       here. After you leave us, we do not want you to
       go out and use that information and those
       relationships to harm us. So if you want to work
       for us, you have to first promise that you will not
       compete against us for a period after you leave
       us.




                               18
Id. at 763. Because the restrictive covenant was not a condition
of “employment, obtaining a particular position within the
Company, receiving confidential information, or the
opportunity to develop customer relationships,” and instead the
employees bound by it had begun receiving proprietary
information and developing client relationships before
agreeing to its terms, the district court concluded that they
served no legitimate business interest and were per se
unenforceable. Id. at 763-65.

      We, like most courts that have confronted this issue,9
are not persuaded by Laidlaw and decline to adopt its

       9
         While the District Judges here and Judge Kessler of
the New Jersey Superior Court found Laidlaw persuasive in
this context, see ADP, LLC v. Hobaica, No. C-118-16 (Oral
Op. N.J. Super. Ct. Law Div. Apr. 23, 2018) (Rafferty
Addendum 72-75); ADP, LLC v. Kusins, No. ESX-C-264-15
(Ltr. Op. N.J. Super. Ct. Ch. Div. June 27, 2017) (Rafferty JA
585-659); ADP, LLC v. DeMarco, No. C-120-16 (Ltr. Op. N.J.
Super. Ct. Ch. Div. Apr. 27, 2017) (Rafferty Addendum 1-69),
most judges have not, see ADP, LLC v. LeNoble, No. ESX-C-
117-16 (Ltr. Op. N.J. Super. Ct. Ch. Div. Jan. 24, 2018)
(Rafferty JA 897-936); ADP, LLC v. Manchir, No. M2016-
02541, 2017 WL 5185458 (Tenn. Ct. App. Nov. 8, 2017);
ADP, LLC v. Hopper, No. ESX-C-23-16, (Oral Op. N.J. Super.
Ct. Ch. Div. June 30, 2017) (Rafferty JA 770-830); ADP, LLC
v. Karamitas, No. ESX-C-143-16 (Oral Op. N.J. Super. Ct. Ch.
Div. June 30, 2017) (Rafferty JA 850-895); ADP, LLC v.
Lynch, Nos. 2:16-1053 (WJM), 2:16-01111 (WJM), 2016 WL
3574328 (D.N.J. June 30, 2016), aff’d 678 F. App’x 77, 80 (3d
Cir. 2017); ADP, LLC v. Jacobs, No. 2:15-3710 (JLL) (JAD),
2015 WL 4670805 (D.N.J. Aug. 5, 2015).




                              19
reasoning.10 And while the New Jersey Supreme Court has
acknowledged that it may be “difficult to draw” the line


       10
          Relatedly, Appellees’ argument that ADP should be
collaterally estopped from arguing that the RCAs are
enforceable because a number of trial court decisions have held
the RCAs unenforceable is meritless. Whether a state court
judgment should have a preclusive effect in a subsequent
federal action depends on the law of the state that adjudicated
the original action; here, the law of New Jersey. Greenleaf v.
Garlock, Inc., 174 F.3d 352, 357 (3d Cir. 1999). “New Jersey
courts follow the doctrine of collateral estoppel or the rule of
issue preclusion described in the Restatement of
Judgments.” Hernandez v. Region Nine Hous. Corp., 684 A.2d
1385, 1391 (N.J. 1996). The Restatement states, in pertinent
part, that in order to avoid a preclusion bar, a plaintiff must
demonstrate that it “lacked full and fair opportunity to litigate
the issue” in the prior proceeding, or that “other circumstances
justify affording [plaintiff] an opportunity to relitigate the
issue.” Restatement (Second) of Judgments § 29 (1982).
Among the factors to be considered as to this limitation of
collateral estoppel in a subsequent litigation is whether “[t]he
determination relied on as preclusive was itself inconsistent
with another determination of the same issue,” id., in which
case a court’s “confidence [in the result] is generally
unwarranted,” id. § 29 cmt. f. Here, there are clearly
inconsistent prior determinations, such that this Court cannot
be confident in (in fact, it rejects) the result Judge Kessler
reached in cases finding these restrictions unenforceable.
Accordingly, ADP is not precluded from arguing that the RCA
is enforceable, notwithstanding any prior judgments to the
contrary.




                               20
between a corporation’s legitimate attempts to protect its client
relationships and illegitimate attempts to lay claim to the
“general skills and knowledge of a highly sophisticated
employee,” Ingersoll-Rand, 542 A.2d at 894, we do not
perceive a bright line rule that restrictive covenants are
unenforceable restraints on trade if imposed selectively and as
a second layer—the rule apparently endorsed by the Laidlaw
court and the District Courts here—to be consistent with Solari
and its progeny.

        For one, ADP’s two-tiered system of binding only a
subset of high-performing employees necessarily amounts to
less of a restraint on trade than a single-tier system in which
ADP imposed the RCA on all employees at the outset of
employment. While New Jersey courts certainly recognize that
“[e]ach client that [ADP] is able to attract represents a
significant investment of time, effort and money which is
worthy of protection,” ADP is not in a position to know at the
time of hire from which of its employees it will most need that
protection. A. T. Hudson & Co., 524 A.2d at 416. Thus, ADP
restrains trade less by declining to uniformly, and perhaps
prophylactically, impose the RCA until it knows, through the
proxy of met sales targets, which of its employees will go on
to develop either a greater number of or deeper relationships
with ADP’s clients (or both). Appellees object that “ADP did
not and cannot offer any evidence that high performers bound
to the more restrictive RCAs have access to additional
confidential information that is not available to lower
performers who are only bound by the SRA and NDA.”
Rafferty Br. 20. But as even Appellees seem to recognize, that
observation bears only on ADP’s ability “to meet its burden to
show that the RCAs were aimed at protecting ADP’s
confidential information,” id. (emphasis added); it does not




                               21
detract from the ample evidence in the record that the RCA is
aimed at protecting ADP’s client relationships.

       Nor are we persuaded that because “[p]articipation in
ADP’s incentive stock awards was entirely voluntary,” Mork
Br. 26, and because ADP does not penalize its qualifying
employees for declining to accept the award and
accompanying RCA, “the primary purpose of the stock-option
non-competes is not to protect [ADP’s] legitimate interests, but
to buy out potential competition,” Laidlaw, 20 F. Supp. 2d at
763. For starters, we find the premise of this argument itself
questionable, for ADP employees who decline to agree to the
RCA are penalized in that they must forego the compensation
award that they otherwise have earned.               But more
fundamentally, ADP’s decision not to further penalize
employees for rejecting the RCA is not proof that the RCA is
“principally directed at lessening competition.” Ingersoll-
Rand, 542 A.2d at 889 (citation omitted). Rather, as reflected
in the declarations of ADP’s witnesses, it manifests a
reasonable business judgment as to how to best balance its
employees’ and the public’s need for free competition with its
own need to protect its legitimate business interests.11

       11
           We are not unmindful of the language appearing in
one of the declarations submitted by ADP in support of its
motions for preliminary injunction that identifies as one
justification for the RCA the notion that employees subject to
it have demonstrated “unique knowledge, skills and job
performance,” Rafferty JA 148—precisely the kinds of
intangible tools that New Jersey courts say employers have “no
legitimate interest” in protecting, Whitmyer Bros., 274 A.2d at
581. That isolated statement, however, does not undermine
ADP’s other evidence reflecting that the RCA principally




                              22
        In concluding that ADP’s interests are strong enough to
warrant enforcement of its RCA, we do not disregard the fact
that Appellees may have countervailing interests, including
that they have acquired skill and expertise while working at
ADP that have “become part of the[ir] person,” and that now
“belong to [them] as [individuals] for the transaction of any
business in which [they] may engage.” Id. at 892 (citation
omitted). As the New Jersey Supreme Court instructs,
however, under these circumstances courts should tailor the
restrictions through the process of blue penciling rather than
holding them to be void per se where, as here, there is no
allegation or evidence of bad faith. See Solari, 264 A.2d at 61.
We turn next to that analysis.

              3.     Undue Hardship

        Under New Jersey law, “[e]ven if the covenant is found
enforceable” because it serves legitimate business interests, “it
may be limited in its application concerning its geographical
area, its period of enforceability, and its scope of activity” so
that those interests are not outweighed by the hardship the
covenant inflicts on the employee. Coskey’s, 602 A.2d at 793
(citations omitted). To determine whether and to what extent
the RCA must be blue penciled, the Court must “balance the


serves a legitimate business purpose. Even in the declaration
in which this troubling language appears, the declarant goes on
to explain that the RCA is imposed on those employees who,
by virtue of their client relationships developed over time, have
“the greatest potential to disrupt ADP’s relationships with its
clients and prospective clients, [and] to harm the goodwill
ADP has generated in the market.” Rafferty JA 148.




                               23
employer’s need for protection and the hardship on the
employee that may result.” Ingersoll-Rand, 542 A.2d at 894.

       We acknowledge that the enforcement of the RCA
would impose some level of hardship on former ADP
employees who want to market themselves in the same field in
which they have previously worked. After all, it would require
them to refrain from soliciting business from anyone “with
whom ADP reasonably expects business within the two (2)
year period following [their] . . . termination of employment,”
and to refrain from working “in any manner with a Competing
Business anywhere in the Territory where doing so will require
[them]” to either “provide the same or substantially similar
services to a Competing Business as those which [they]
provided to ADP while employed,” or “use or disclose ADP’s
Confidential Information or trade secrets.” Rafferty JA 78.
“The question remains, however, whether this hardship [is]
‘undue,’ when balanced against the legitimate interest of the
employer.” Coskey’s, 602 A.2d at 794.

        Many courts considering the enforceability of the RCA,
including Judge Linares in a decision three years before the
case presently before us, have concluded, at the very least, that
“restricting [former ADP employees] from soliciting
prospective clients—of which [they] did not gain knowledge
of [sic] through ADP”—is not a reasonable covenant
provision. ADP, LLC v. Jacobs, No. 2:15-3710 (JLL) (JAD),
2015 WL 4670805, at *5 (D.N.J. Aug. 5, 2015); see also ADP,
LLC v. Lynch, Nos. 2:16-1053 (WJM), 2:16-01111 (WJM),
2016 WL 3574328, at *7-*9 (D.N.J. June 30, 2016), aff’d 678
F. App’x 77, 80 (3d Cir. 2017); ADP, LLC v. Manchir, No.
M2016-02541-COA-R3-CV, 2017 WL 5185458, at *6-*9
(Tenn. Ct. App. Nov. 8, 2017). Others have deemed heavier




                               24
blue penciling necessary to render the RCA not unduly
burdensome, by, inter alia, limiting the restricted “Territory”
in the non-compete in terms of both geographic area and
market share, see ADP, LLC v. LeNoble, No. ESX-C-117-16
(Ltr. Op. N.J. Super. Ct. Ch. Div. Jan. 24, 2018) (Rafferty JA
930) (“The Court finds that the non-competition clauses in this
matter should be limited to both the northwest Chicago suburbs
and to employers with fewer than fifty employees.”), or by
“blue pencil[ing] the geographic restriction [contained in the
non-compete clause] into the non-solicitation clause,” ADP,
LLC v. Hopper, No. ESX-C-23-16, (Oral Op. N.J. Super. Ct.
Ch. Div. June 30, 2017) (Rafferty JA 809).

        Here, ADP concedes—perhaps in light of these
decisions—that the non-solicitation provision of the RCA is
overbroad and must be blue penciled to the extent that it
restricts employees from soliciting prospective clients “of
which [Appellees] did not gain knowledge of [sic] through
ADP.” ADP Rafferty Br. 19 (quoting Jacobs, 2015 WL
4670805, at *5). The District Courts, however, having
concluded that the RCA was unenforceable per se, did not have
occasion to consider the effect of this concession or the extent
to which the RCA could be blue penciled to avoid an undue
burden on Appellees.

        They also did not have an opportunity to consider other
facts relevant to the extent of the hardship Appellees will suffer
if the RCA is enforced, including whether it would preclude
the employee from being able to earn a living in his or her
occupation,12 see Karlin, 390 A.2d at 1169, and the fact that

       12
         On this point, ADP contends that contrary to Judge
Linares’ conclusion that ADP “seeks to enjoin [Rafferty] from




                               25
both Appellees voluntarily resigned from ADP and chose to
immediately join Ultimate, a direct competitor, thereby
arguably “br[inging] any hardship upon [themselves],” Cmty.
Hosp. Grp., 869 A.2d at 898.

        In short, the undue hardship factor, too, counsels in
favor of blue penciling and, in any event, compels a remand for
the District Court to determine in the first instance the extent
of the employees’ hardship and the specific revisions that could
be made to render the RCA reasonable under the
circumstances.

              4.      Injury to the Public

        The final Solari factor instructs courts to consider the
fact that “enforcement of the restriction should not cause harm
to the public.” Id. (citing Karlin, 390 A.2d at 1161). Because
this case contains “no major public component,” the imposition
of restrictive covenants here creates no injury to the public in
the nature of “the rights of the public to have free access to the
advice of professionals licensed by the State,” Coskey’s, 602
A.2d at 793, as it may, for example, in the context of physicians


working for Ultimate for a period of twelve months,” Rafferty,
2018 WL 1617705, at *3, it is merely asking “that she be
precluded from working within her prior ADP territory for one
year, consistent with the terms of the RCAs,” ADP Rafferty
Br. 25. “Since her territory at [Ultimate] is larger than her
territory was at ADP, there is no reason for her to be required
to quit her job. Id. While the District Courts found these points
salient with respect to the Solari analysis of the SRA and NDA,
they did not reach them with respect to the RCA, having
concluded that they are unenforceable per se.




                               26
and accountants, see Karlin, 390 A.2d at 1169-70 (physicians);
Schuhalter v. Salerno, 653 A.2d 596, 600 (N.J. Super. Ct. App.
Div. 1995) (accountants). Here, the public interest points both
ways—towards the employees’ ability to use their marketable
skills and the employer’s interest in protecting its goodwill and
client relationships—and is ultimately equivocal. Thus, we are
confident that the approach outlined above balances the
relative interests of ADP and Appellees in a way that comports
with the public interest, including the clear preference under
New Jersey law to modify overbroad restrictive covenants
rather than nullify them outright.

                            * * *

        Having concluded that the RCA is not a per se
unenforceable restraint on trade and that each of the Solari
factors favors at least partial enforcement, we will leave the
next steps concerning appropriate balancing and blue penciling
in the capable hands of the District Courts.

V.     Conclusion

       For the foregoing reasons, we will vacate the judgment
of the District Courts and will remand for further proceedings
consistent with this opinion.




                               27
