Non-competition agreements/restrictive covenants

Are Non-Competition and Non-Solicitation Agreements Enforceable in Illinois?

Whether a non-competition or non-solicitation agreement is valid and enforceable under Illinois law depends upon the specific terms of the agreement, as well as the unique facts and circumstances surrounding the agreement, employment, separation of employment, and post-employment employee conduct.

Adequate Consideration

The first question is whether adequate consideration exists to support a restrictive covenant.

Overbroad Employee Confidentiality Provisions in Employment Agreements

On December 30, 2019, the Illinois Appellate Court, Second District, issued an opinion that discussed the circuit court's ruling that an employee confidentiality provision contained in an employment agreement was overly broad in scope and therefore unenforceable.  Indeck Energy Services, Inc. v. DePodesta, et al., 2019 IL App (2d) 190043 (Dec. 30, 2019).  The plaintiff-employer filed a lawsuit against former employees for breach of their employment contracts and for injunctive relief to enforce its confidentiality and noncompetition agreements.  After a bench trial, the trial court directed a finding in the defendants' favor, finding, among other things, that the confidentiality agreement was void and unenforceable.

Bright-Line Two-Year Rule for Noncompetition Agreements Reaffirmed by the Illinois Appellate Court

On March 29, 2019, the Illinois Appellate Court, First District, upheld the rule that continued employment for less than two years does not constitute adequate consideration to support noncompetition or nonsolicitation provisions contained in Illinois at-will employment contracts.  Axion RMS, Ltd. v. Booth, 2019 IL App (1st) 180724 (First Dist. March 29, 2019).  This is the so-called "two-year rule," established by the Illinois Appellate Court, First District, in its decision in Fifield v. Premier Dealer Services, Inc., 2013 IL App (1st) 120327, which remains fluid and controversial, because the Illinois Supreme Court has not decided the issue.  Consequently, federal district court judges may, but are not required to follow the "two-year" rule when determining the enforceability of noncompetition or nonsolicitation agreements under Illinois law.  Federal judges in the U.S. District Court for the Northern District of Illinois have split on the issue--some follow the bright-line "two-year rule," while others determine the enforceability of employment restrictive covenants based upon the totality of the circumstances.

Illinois Appellate Court Declines to Establish Per Se Standard of Reasonableness for the Temporal Scope of Employment-Based Noncompetition and Non-Solicitation Agreements.

On December 11, 2018, the Illinois Appellate Court, Third District, declined to establish a per se standard of reasonableness for the temporal scope of employment-based restrictive covenants, indicating that reasonableness must be determined based upon the totality of the facts and circumstances of each individual case.  Pam's Academy of Dance/Forte Arts Center v. Marik, 2018 IL App (3d) 170803 (12/11/2018).  In this case, the plaintiff alleged two counts of breach of an employment contract and a third count for breach of the Illinois Trade Secrets Act.  The plaintiff alleged that the defendant, a former employee, breached their employment non-disclosure and restrictive covenant agreement by opening a dance studio within 25 miles of the plaintiff's studio and soliciting students and teachers through an improperly-obtained customer list.

Covenant not to Compete Held Unenforceable under Illinois Law

On April 17, 2018, a U.S. District Court judge for the Northern District of Illinois ruled that under Illinois law, a covenant not to compete is unenforceable per se if the covenant, on its face, restricts an employee from taking any position with another company that engages in the same business as the employer, without regard to whether that position is similar to the position that the employee held with the employer or otherwise competes with the employer.  Medix Staffing Solutions, Inc. v. Dumrauf, 17 C 6648 (N.D.Ill 4/17/2018).  The employee entered into an employment at-will, confidentiality, and non-compete agreement with the employer and subsequently executed an employee confidentiality/non-compete agreement.  The agreement included a covenant not to compete that restricted the employee, for a period of eighteen (18) months following termination of employment, within a radius of 50 miles from any office of the employer where the employee performed services for the employer, from employment in any capacity with any business that either offers a product or services in actual competition with the employer, or which may be engaged directly or indirectly in the employer's business.

Federal Judge Rules that Non-solicitation Provision of Employment Agreement is Enforceable

On October 20, 2017, a federal district court judge for the Northern District of Illinois held that a non-solicitation restrictive covenant contained in an employment contract was not unenforceable for lack of adequate consideration, even though the defendants were employed for fewer than two (2) years.  Stericycle, Inc. v. Simota, et al., No. 16 C 4782 (N.D.Ill. 10/20/2017).  In so holding, the court rejected the Illinois Appellate Court's ruling in Fifield v. Premier Dealer Servs., 2013 IL App (1st) 120327, which held that a non-competition or non-solicitation restrictive covenant contained in an employment at-will employment agreement is unenforceable for lack of adequate consideration when the employee was employed for fewer than two (2) years.  Several other Illinois Appellate Court decisions have followed Fifield and adopted the so-called "two-year rule," but the Illinois Supreme Court has not reached the issue.  Accordingly, federal court judges are not bound to follow Fifield, and instead must make a predictive judgment on how the Illinois Supreme Court would decide the issue.

Illinois Appellate Court Holds that LinkedIn Invitations did not Violate Noncompetition Agreement Contained in Employment Contract

On August 7, 2017, the Illinois Appellate Court, First District, held that a former branch sales manager did not violate the noncompetition covenants contained in his employment contract with his former employer when he transmitted LinkedIn invitations to its employees.  Bankers Life and Casualty Company v. American Senior Benefits, LLC, et al., 2017 IL App (1st) 160687 (8/7/2017).  The former employer sued for breach of the noncompetition agreement.  It alleged that the former employee breached the agreement by attempting to solicit and recruit its employees for his new employer, a competitor, through LinkedIn requests to induce them to sever their employment with the plaintiff and join the competitor.  The noncompetition provision stated that during the term of his employment contract and for 24 months thereafter, he was prohibited from inducing or attempting to induce any employee to sever his or her employment relationship or sell insurance for any competitor.

New Illinois Employment Laws: 2016 Year in Review

In 2016, several new Illinois employment law statutes as well as a City of Chicago Ordinance were enacted, many of which expand employee leave of absence rights.  Here is a summary of the new Illinois and Chicago employment laws.

Illinois Employee Sick Leave Act:

Illinois employers who provide paid sick leave must allow employees to use their paid sick leave time to care care for their immediate family members, parents-in-law, grandchildren or grandparents.

Illinois Child Bereavement Leave Act:

New Illinois Employment Law Bans Non-compete Agreements for Low Wage Employees

On August 19, 2016, Illinois Governor Rauner signed the "Illinois Freedom to Work Act" into law which, effective January 1, 2017, will prohibit employers from entering into non-competition agreements with low wage employees, i.e., employees earning less than $13.00 per hour.  The new law will apply to Illinois employers of any size (who employ one or more employees).  The law provides that no employer shall enter into a covenant not to compete with any low wage employee; and that any covenant not to compete so entered into is illegal and void.

Employer Customer Lists May Qualify As Trade Secrets

On February 17, 2016, the Illinois Appellate Court, First District, issued an opinion in a lawsuit in which an employer sued a former employee for breach and enforcement of his employment agreement and his severance agreement.  Bridgeview Bank Group v. Meyer, 2016 IL App 160042 (1st Dist., 2/17/2016).  The employee had entered into an employment contract which contained, among other things, a non-competition provision, as well as a confidentiality clause and non-solicitation provisions as to customers and employees.  In connection with the termination of his employment, the employee signed a severance agreement, which eliminated the non-competition provision of his employment agreement, but re-affirmed the confidentiality and non-solicitation provisions.  The employer filed a lawsuit against the former employee, in which it alleged that he violated the provisions of the employment agreement and the severance agreement.  The employer asserted claims under Illinois law for breach of contract, breach of fiduciary duty, tortious interference with business relationships, and violation of the Illinois Trade Secrets Act.

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