Employment contracts

Executive's Claim for Breach of Severance Payment Provision in Employment Contract Proceeds to Trial

On February 24, 2017, the Illinois Appellate Court, First District, reversed an order of summary judgment in favor of a defendant employer in a lawsuit for breach of an employment agreement.  Rosenberger v. United Community Bancshares, Inc., 2017 IL App (1st) 161102 (2/24/2017).  This case involved an executive employment contract that provided the executive, a Chief Lending Officer, with a 3-year term of employment.  The contract contained a severance compensation provision, which stated that if the company terminated the executive's employment prior to the expiration of his employment term for any reason other than cause, the executive would be entitled to a lump-sum severance payment equal to two times his annual base salary then if effect.

Termination of Bonus Provision in Employment Contract Subject to the Covenant of Good Faith and Fair Dealing

On December 22, 2016, the 7th Circuit affirmed the district court's order granting summary judgment to the defendant on a claim under Illinois law that it violated the covenant of good faith and fair dealing by failing to pay the plaintiff his bonuses under his employment contract.  Wilson v. Career Education Corporation, No. 16-1063 (7th Cir. 12/22/2016).  The plaintiff alleged that the defendant owed him the payment of bonuses under an incentive compensation provision in his employment agreement.  He alleged that the defendant violated the implied covenant of good faith and fair dealing, which is implied in all contracts under Illinois law.  The bonus plan explicitly reserved to the company the right to terminate or amend the plan at any time for any reason at its sole discretion.  However, this type of discretionary provision in a bonus plan is still subject to the covenant of good faith and fair dealing and, therefore, does not provide a company with absolute unfettered discretion to terminate an employee's bonus payments.

Illinois Appellate Court Reverses Dismissal of Claims for Breach of Employment Contract and Promissory Estoppel

On December 20, 2016, the Illinois Appellate Court, First District, reversed an order of the trial court that had dismissed an employee's claims for breach of an employment agreement and promissory estoppel.  Boswell v. City of Chicago, 2016 IL App (1st) 150871 (12/20/2016).  Promissory estoppel is an employment law claim that is not dependent upon the existence of an employment contract.  To state a claim for promissory estoppel, a employee must allege: (1) the employer made an unambiguous promise; (2) he relied on the promise; (3) his reliance was expected and foreseeable; and (4) he relied on the promise to his detriment.  In this case, the employee alleged that the employer made representations that his employment would include certain terms and conditions, upon which he reasonably relied to his detriment by resigning from his previous employment and relocating his family to Chicago.

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:

$1 Million Award for Breach of Employment Contract Affirmed by Illinois Appellate Court

On September 30, 2016, the Illinois Appellate Court, First District, affirmed an order of the circuit court that awarded $1 million to a former employee for breach of an employment agreement.  Reed v. Getco, LLC, 2016 IL App (1st) 151801 (9/30/2016).  The subject employment contract contained a unique provision: the employee agreed to not compete with the employer for six months after termination of his employment for any reason; and the employer agreed to pay the employee $1 million if his employment terminated for any reason, unless he violated the non-competition covenant (or any other term of the agreement).  The agreement also gave the employer the right to modify the restrictive covenant in its "sole and absolute discretion;" but provided that no waiver or modification of any term of the agreement would be effective without a writing signed by the party against whom the modification is enforced.  Six years after signing the agreement, the employee resigned.  A week later, the employer sent him an email stating that the restricted (non-compete) period is zero months or is waived; and he would not receive any non-compete payments.

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.

$2.4 Million Jury Verdict on Breach of Employment Contract and Tortious Interference Claims

On March 28, 2016, the Illinois Appellate Court, First District, affirmed a $2.4 Million jury verdict in a lawsuit for breach of an employment agreement and tortious interference with the employment contract.  Koehler v. The Packer Group, et al., 2016 IL App (1st) 142767 (3/28/2016).  The plaintiff, who was employed as a CEO, alleged that he was demoted and then discharged after revealing financial improprieties to the company's board.  He sued the company for breach of his employment contract and also sued certain individuals for tortious interference with contract, claiming that they induced the company to breach its employment agreement with him.  After a three-week trial, the jury returned a large verdict for the plaintiff.

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.

Federal and Illinois Courts Disagree About What Makes Non-Compete Clauses in Employment Contracts Enforceable

There is a judicial split between federal judges in the Northern District of Illinois and the Illinois Appellate Court, First District, on the issue of whether two years of continued employment is required for adequate consideration to support a non-competition provision in an employment contract under Illinois law.  In 2013, the Illinois Appellate Court, First District, held that (absent other consideration) at least two years of employment is required as consideration to support a non-compete or non-solicitation clause in an employment agreement.  Fifield v. Premier Dealer Servs., Inc., 373 Ill.Dec. 379, 993 N.E.2d 938 (Ill.App.1st Dist. 2013).  Otherwise, the non-compete or non-solicitation provision is unenforceable for lack of consideration, even if the employee left employment voluntarily.

Illinois Appellate Court Slams Restrictive Covenants

On October 26, 2015, the Illinois Appellate Court held that non-competition, non-solicitation, and confidentiality provisions contained in an employment contract were unenforceable as a matter of law.  Assured Partners, Inc., et al. v. Schmitt, 2015 IL App (1st) 141863.  This case involved a "take it or leave it" employment agreement that an employer required an employee to sign during his employment in order to keep his job.  The agreement contained the usual restrictive covenants.  After the employee resigned, the employer filed a lawsuit to enforce the restrictive covenants against him.  A non-competition agreement is enforceable only if it: (1) is no greater than is required to protect a legitimate business interest of the employer; (2) does not impose an undue hardship on the employee; and (3) is not injurious to the public.  In addition, the scope of the activity, temporal, and geographic restrictions must be reasonable.  The court found the non-competition provision unreasonably broad in terms of activity, temporal, and geographic scope.  The non-compete prohibited the employee, an professional liability insurance broker, from working in that industry for 28 months in all 50 states.


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