Employment contracts

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.

Illinois Supreme Court Affirms Dismissal of Retaliatory Discharge Lawsuit

On February 4, 2021, the Illinois Supreme Court affirmed the dismissal of claims for retaliatory discharge and violation of the Illinois Whistleblower Protection Act.  Rehfield v. Diocese of Joliet, 2021 IL 125656 (Feb. 4, 2021).  Plaintiff alleged that defendant unlawfully retaliated against her by terminating her for reporting a parent’s threatening conduct to police.  Plaintiff alleged that her employment termination violated Illinois public policy to investigate and prosecute criminal offenses.  She further alleged that defendant’s actions were likely to make other staff and faculty members reluctant to come forward to report potentially unlawful or criminal conduct.  Plaintiff also alleged that defendant’s actions violated the Illinois Whistleblower Act, which prohibits Illinois employers from retaliating against Illinois employees for disclosing information to a law enforcement agency, provided that the employee has reasonable cause to believe the information discloses a violation of a state or federal law, rule, or regulation.

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.

7th Circuit Upholds Employee Arbitration Agreement

On August 19, 2019, the 7th Circuit affirmed an order of the district court that granted an employer's motion to compel arbitration pursuant to an employee arbitration agreement that required arbitration of employment-related disputes.  Gupta v. Morgan Stanley Smith Barney, LLC, et al., No. 18-3584 (7th Cir. 8/19/2019).  The plaintiff filed a lawsuit against his former employer for employment discrimination and retaliation.  The company moved to compel arbitration.  It argued that the employee agreed to arbitrate the employment claims after he did not opt out of the company's arbitration agreement.  The plaintiff contended that during his employment, he never saw an arbitration offer or agreed to arbitrate employment-related disputes.

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.

7th Circuit Affirms Dismissal of Claim for Tortious Interference with Employment Contract under Illinois Law

On October 11, 2018, the 7th Circuit affirmed an order of the district court which dismissed an Illinois common law tort claim for tortious interference with an employment contract for failure to state a claim upon which relief may be granted pursuant to Fed.R.Civ. P. 12(b)(6).  Webb v. Frawley, No. 18-1607 (7th Cir. 10/11/2018).  The plaintiff sued a former co-worker for tortiously interfering with his employment contract, claiming that the interference resulted in the termination of his employment.  The district court granted the defendant's motion to dismiss.  The plaintiff alleged that the defendant intentionally induced a breach of his employment contract by his employer--the termination of his employment--by ordering him to pursue business that his employer refused to fulfill, and by reporting to his employer that he was not performing.  The plaintiff claimed that the defendant did so in an attempt to resurrect or save the defendant's commercial reputation.  The plaintiff was advised that his employer had terminated his employment for poor performance and a lack of productivity.

7th Circuit Affirms Summary Judgment for Employer on Claim for Breach of Employment Separation Agreement

On November 1, 2018, the 7th Circuit affirmed an order of summary judgment in favor of an employer-defendant on a breach of contract claim brought by a former employee-physician, who alleged that the defendant breached her employment separation agreement by releasing a credentialing form with some "fair" ratings to a potential employer.  Gallo v. Mayo Clinic Health System-Franciscan Medical Center, Inc., No 17-1623 (7th Cir. 11/1/2018).  The plaintiff resigned her employment and entered into an employment separation agreement to prevent the defendant from saying anything negative about her to prospective employers in response to employment inquiries.  Subsequently, her former supervisor rated her performance as "fair" on two criteria in a credentialing form.  She sued for breach of the separation agreement, alleging that as a result of the breach, she was not hired for a subsequent position by a prospective employer with whom she had entered into employment contract negotiations.  The separation agreement indicated that no reference will be made to any performance issue and nothing derogatory will be stated to potential employers seeking a reference.

7th Circuit Remands $10 Million Award in Collective Arbitration of FLSA Wage Claims for Threshold Determination by District Court of Whether Employment Contract Permits Class or Collective Arbitrations of Employment-related Claims.

On October 22, 2018, the 7th Circuit ruled that the district court erred in invalidating a waiver clause in the parties' arbitration agreement, vacated the district court's order enforcing a $10 million arbitration award in a collective action under the Fair Labor Standards Act for multiple wage claims, and remanded the case to the district court to conduct the threshold inquiry regarding class or collective arbitrability to determine whether the arbitration clause of the employment agreement authorizes collective arbitration.  Herrington, et al. v. Waterstone Mortgage Corporation, No. 17-3609 (7th Cir. 10/22/2018).  The plaintiff-employee filed a collective action against her employer for alleged minimum wage and overtime wage and hour violations of the Fair Labor Standards Act ("FLSA").  A collective action allows similarly situated employees to opt in to the lawsuit.  The district court compelled arbitration pursuant to the arbitration agreement between the employer and employee, but struck down as unlawful a waiver clause that appeared to forbid class or collective arbitration of the plaintiff's claims.  The arbitrator conducted a collective arbitration over the employer's objections and awarded more than $10 million in damages and attorneys' fees to the plaintiff and 174 similarly situated employees.

7th Circuit Affirms Summary Judgment on Title VII and Section 1981 Race Discrimination Claims

On September 4, 2018, the 7th Circuit affirmed an order of summary judgment in a lawsuit filed by an assistant professor against a state university, in which the professor alleged that the University denied him tenure because of his race, African-American, in violation of Title VII of the Civil Rights Act of 1964, as amended ("Title VII") and Section 1981 of the Civil Rights Act of 1866 ("Section 1981").  Haynes v. Indiana University, No. 17-2890 (7th Cir. 9/4/2018).  The plaintiff was employed as an assistant professor in the Department of Education at Indiana University.  At the conclusion of his six-year probationary employment contract, he was denied tenure.  The 7th Circuit held that the record does not support an inference that the University denied tenure because of the plaintiff's race.

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