Employment contracts

Retaliatory Discharge Claim for Employees who Complain about Unpaid Wages under the Illinois Wage Payment and Collection Act.

On December 23, 2021, the Illinois Appellate Court, Second District, held that the Amended Illinois Wage Payment and Collection Act (the "Act") creates a statutory cause of action for retaliatory discharge for an employee whose employment has been terminated for exercising his or her rights under the Act.  Dichiarro v. Woodland Maintenance Group, LLC, et al., 2021 IL App (2d) 210418 (2nd Dist. Dec. 23, 2021).  The plaintiff alleged that the defendants terminated her employment in retaliation for and because of her repeated demands for payment of unpaid wages due and owing to her under the terms and conditions of her employment agreement.  Under Illinois common law, an employer may discharge an employee at will, at any time, with or without cause.  Illinois courts, however, have recognized the tort of retaliatory discharge as a limited and narrow exception to the at-will employment doctrine.

Lawsuit for Breach of Employment Law Settlement Agreement Unsuccessful

On March 10, 2021, the 7th Circuit affirmed an order of the district court granting summary judgment in favor of an employer in a lawsuit in which a former employee alleged that the employer breached the confidentiality and non-disparagement provisions of an employment law settlement agreement.  Pack v. Middlebury Community Schools, No. 20-1912 (7th Cir. March 10, 2021).  The plaintiff had filed employment law claims against the employer.  The parties resolved the employment lawsuit by executing an employment law settlement agreement.

What is the New Illinois Non-Compete Law?

On August 13, 2021, Governor Pritzker signed the Illinois Freedom to Work Act (the "Act") into law, which became effective on January 1, 2022, and applies to non-competition and non-solicitation agreements entered into after the effective date.  The Act codifies Illinois law on non-competition and non-solicitation agreements.  In so doing, the Act establishes a set of statutory requirements and express prohibitions, with which Illinois employers should immediately familiarize themselves.  The Act is distilled and outlined below.

I. Statutory Requirements

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.

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