The Illinois Appellate recently affirmed a two-year bright-line continued employment rule for adequate consideration in non-compete cases if the only consideration is continued employment. Many, but not all, of the federal district courts in Illinois, do not follow this bright-line rule predicting that the Illinois Supreme Court will not follow it.  The Illinois Supreme Court has not yet addressed the issue. You can read the most recent Illinois Appellate decision here.  You can also listen below to the oral argument held in the Appellate Court before it reached this decision:

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New Washington Law Makes Sweeping Changes to Non-Compete Agreement Law 

Non-compete law in the state of Washington underwent sweeping changes last week with the signing into law of HB1450 (“Washington Non-Compete Act”) which targets the use of restrictive covenants within the state. The new law regulates the use and scope of non-competition agreements with both employees and independent contractors and restricts the use of non-poaching agreements in franchise agreements as well as policies against moonlighting. The new law takes effect on January 1, 2020.

Under the new law, a non-competition covenant will be void and unenforceable unless the following criteria are met:

  1. If the covenant is entered into at the commencement of employment, it must be disclosed in writing to the employee by no later than the date of the employee’s acceptance of the offer of employment;
  1. If the covenant is entered into at the outset of employment but will not take effect until a later date due to a foreseeable change in the employee’s compensation, the agreement must specifically disclose that it may be enforceable at a future time;
  1. If the covenant is entered into after the commencement of employment, it must be supported by additional consideration;
  1. The worker’s annual earnings must exceed $100,000 (in the case of an employee) or $250,000 (in the case of an independent contractor)based upon the income reflected in Box 1 of an employee’s IRS Form W-2 or an independent contractor’s IRS Form 1099; and
  1. The post-separation duration of the non-compete must last no longer than 18 months unless the employer can show by clear and convincing evidence that a longer duration is necessary to protect its business or goodwill.

The new law defines the term “non-competition covenant” to expressly carve out certain types of restrictive covenants such as employee and customer non-solicitation covenants, confidentiality/non-disclosure covenants, and covenants relating to the purchase or sale of a business or franchise. Continue reading ›

If the CEO of a bankrupt company buys shares in a spinoff company, is that evidence of sabotage, or just that they’re trying to make the best of a bad situation?

Edward Lampert, who was chairman and CEO of Sears Holding Corp. when it went bankrupt, is now being sued by the company for allegedly orchestrating shady dealings between himself, his hedge fund company (ESL) and Sears’ finances.

Having taken the reigns of the company when it was already in a financial downward spiral, Lampert allegedly made promises he couldn’t keep about turning the company’s finances around. Instead, he and his investors bought some of Sears’ largest and most valuable assets, then invested in the companies that spun off from Sears using those assets, essentially profiting off Sears’ bankruptcy.

Shareholders who received stock in the home improvement branch of Sears, known as Orchard Supply Hardware Stores Corp. allegedly received millions of dollars’ worth of stock, but without properly compensating Sears. Three of the shareholders who were on the board of Sears owned stock in the home improvement store that was collectively worth more than $100 million, according to the lawsuit.

When Sears Hometown and Outlet Stores was spun off into another company, those who owned stock in Sears were given the opportunity to buy shares of the new company. Continue reading ›

This year marks one hundred years since the birth of modern First Amendment jurisprudence. In 1919, as the United States was recovering from the effects of World War I, the U.S. Supreme Court grappled with a series of cases involving the speech of political dissidents charged with violating federal laws designed to quell criticism of the U.S. war effort, draft, or policy toward foreign nations.

The first of the free speech cases that came before the Supreme Court in 1919 was Schenck v. United States. The Schenck defendants were convicted for violating the Espionage Act of 1917 for distributing leaflets that criticized the draft and supported that position by reciting language from the 13th Amendment. Writing for a unanimous court, Justice Oliver Wendell Holmes affirmed the defendants’ convictions, reasoning that what can be said in times of peace may not be legal during times of war. In short, the First Amendment had limits.

Holmes reasoned that, “[t]he character of every act depends upon the circumstances in which it is done,” which he followed with the now-famous hypothetical of “a man in falsely shouting fire in a theatre and causing a panic.” Holmes’s opinion was also noteworthy in that it introduced the “clear and present danger” test which became the test applied by courts in First Amendment cases for the next five decades.

Perhaps the most impactful opinion to come from the 1919 free speech cases was Justice Holmes’s dissent in Abrams v. United States­—a dissent that has come to be known as the “great dissent.” Few could have known at the time Justice Holmes penned his dissent that his words would begin shaping the contours of our understanding of the First Amendment and the freedoms guaranteed by it—freedoms that are considered by many around the world to be quintessentially American.

The Abrams case was not particularly noteworthy. It was in many respects a repeat of Schenck. And like Schenck, the convictions of the defendants charged with violating the Sedition Act of 1918 were upheld. But despite coming only a few months apart, Justice Holmes voted to uphold the convictions in Schenck and to overturn the convictions in Abrams. What was the difference? Continue reading ›

Our longtime co-counsel and colleague Dmitry Feofanov argued an important case this week before the Illinois Supreme Court concerning a consumer’s ability to revoke acceptance of a brand new RV with a hidden defect — a leaky roof.  The consumers revoked acceptance after the RV dealer couldn’t provide an estimated completion date for the repairs. An RV is a summer product and the consumers feared (correctly) that they would lose the use of the RV which is a summer product for the entire summer if they did not revoke acceptance.  The trial and appellate courts ruled that the consumers should have given the dealer the opportunity to repair the RV. We filed an amicus brief in the Supreme Court on behalf of the National Association of Consumer Advocates supporting the position that a consumer or buyer of goods does not have to provide an opportunity to cure for a material defect as this that undercuts the value of the product to the buyer and can revoke acceptance.

You can also listen to the oral argument below.

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A manufacturer of dairy silos and a distributor of such silos entered into an exclusive distribution agreement covering 13 Latin American countries. The agreement specified that the manufacturer would refrain from selling silos to third parties in the covered countries. Despite this, the manufacturer completed almost $4 million in direct sales in the covered countries during the time of the agreement. When the distributor sued, the manufacturer argued that the agreement expressly prohibited recovery of lost profits. The district court and appellate court found that this portion of the contract was unconscionable under Wisconsin’s interpretation of the Uniform Commercial Code, and awarded damages to the distributor as a result.

Walker Stainless Equipment, Co., LLC, and its affiliates, manufacture dairy silos. Sanchelima International, Inc. and its affiliate, sell dairy silos in Latin America. After decades of doing business together, Walker and Sanchelima entered into an agreement in 2013 providing that Sanchelima would be the exclusive distributor of Walker’s products in 13 Latin American countries. Walker agreed not to sell silos directly to third parties in those thirteen countries. Continue reading ›

Two companies entered into an exclusive distribution agreement for a medical bed that was marketed to hospitals and long term care facilities. The agreement contained a provision automatically extending the exclusivity period if the distributor agreed to purchase at least $200,000 of beds in 2011. Though the CEO of the distributor orally agreed to purchase $800,000 worth of beds in December 2010, the manufacturer still attempted to cancel the agreement six months later and enter into an exclusive agreement with a competitor of the distributor. The court found that damages from this breach were foreseeable and consequential under New York law, and awarded the distributor just over $1 million as a result.

VitalGo manufacturers a hospital bed called the Total Lift Bed that can incline to a near 90-degree angle with the occupant harnessed and upright. The bed is used by hospitals when treating obese and elderly patients. The most expensive models of the bed can exceed $10,000. Kreg Therapeutics, Inc. sells and rents specialty medical equipment to medical providers. It sought a distribution arrangement with VitalGo for the beds.

The companies negotiated and entered into an agreement in December 2009. Kreg received exclusive distribution rights in Indiana, Illinois, Wisconsin, and Atlanta, Georgia. The exclusivity lasted until 2011, but the contract provided for an extension of the period. Kreg could obtain an extension by choosing to make a minimum purchase commitment of $200,000 in each of its four territories before January 2011. If Kreg did so, the exclusivity period automatically extended for an additional year. Six months after signing the initial agreement, the two companies added an amendment. The amendment granted Kreg exclusivity in several new territories, including parts of Florida, New Jersey, and St. Louis, Missouri. Kreg gained exclusivity in these territories through May 2012. The amendment did not, however, specify whether the new date applied to the original territories as well.

In June 2011, Ohad Paz, VitalGo’s CEO and Managing Director, emailed Craig Poulos, Kreg’s President, complaining that Kreg had not performed under the contracts as required to maintain exclusivity. Kreg responded that it was willing to make minimum purchase commitments for the remainder of 2011, but that it wanted an update on design problems that Kreg had raised with VitalGo. A week later, RecoverCare, a competitor of Kreg, issued a press release announcing a nationwide exclusivity arrangement for the TotalLift bed. VitalGo and RecoverCare entered into a multi-year agreement in August 2011. In September 2011, Kreg requested five new beds from VitalGo, and VitalGo refused to fill the order. Kreg then filed suit. Continue reading ›

Employers across a wide variety of industries include non-compete clauses in their employment agreements. This practice has come under increasing fire in recent years. The latest being a petition filed by the AFL-CIO, Service Employees International Union, and a number of other labor and public interest groups with the U.S. Federal Trade Commission (FTC) calling for the FTC to its rulemaking power to issue a federal rule banning the use of non-compete agreements nationwide.

According to the petition, it is estimated that one out of every five U.S. workers — or about 30 million — is bound by a non-compete agreement. The petition seeks implementation of a new rule prohibiting employers across all industries from requiring workers sign agreements limiting their ability to work for a competitor. The petition does not distinguish between employees and independent contractors but calls for a ban on the use of non-compete agreements for both types of workers. According to these groups, non-compete agreements suppress the ability for employees to negotiate for raises, escape from undesirable work environments, or taking their experience and putting it to work by starting competing businesses of their own. If the FTC, which has a mandate to enforce antitrust and consumer protection laws, issues a rule banning non-compete agreements as is being requested, it would make companies that violate the rule subject to FTC enforcement and could cause such companies to incur liability.

The petition calls out by name companies such as Amazon, which the petition claims required temporary warehouse workers to agree to broad non-compete clauses and fast-food chain Jimmy John’s, which, prior to its 2016 settlement with the Illinois Attorney General, the petition claims restricted new hires from working for any competing restaurant within three miles.

The use of restrictive covenants (e.g. covenants not to compete, non-solicitation agreements, etc.) and other so-called anti-competitive practices by employers have become an increasing focus for labor advocates and public officials, including state attorneys general who have filed an increasing number of suits against fast food franchises and other employers who hire large numbers of low wage workers seeking to end the use of non-compete provisions. Silicon Valley heavy-hitters including Apple, Google, Adobe, and Intel agreed in 2015 to a $415 million settlement to end claims that they conspired together to implement an anti-poaching policy to avoid stealing one another’s employees. The FTC has come under pressure from lawmakers and consumer groups to join these labor groups and attorneys general in by taking a more aggressive approach to antitrust enforcement. Continue reading ›

Congress is currently considering two new bills that take aim at the practice of requiring consumers to agree to resolve all disputes through binding arbitration and including class action waivers in consumer contracts. If passed and signed into law, the laws could dramatically change the way businesses contract and resolve disputes with consumers.

The first bill being considered is the Forced Arbitration Injustice Repeal Act (“FAIR Act”). Introduced by Senator Richard Blumenthal of Connecticut in the Senate (S. 620) and Representative Hank Johnson of Georgia in the House (H.R. 1423), the FAIR Act seeks to amend the Federal Arbitration Act (“FAA”), 9 U.S.C. §1, et seq., and would prohibit the inclusion of mandatory arbitration clauses in contracts with employees and consumers. Continue reading ›