Published on:

Material Breach of Contract Invalidates Covenant Not to Compete, Illinois First District Rules

 

Our firm’s Illinois non-compete agreement litigation lawyers were pleased to note a ruling by the First District Court of Appeal that a doctor may not bring a lawsuit against his former business partner for breaching a non-compete agreement. Bisla v. Parvaiz, No. 1-07-1647 (Ill. 1st., Feb. 21, 2008), arose out of a soured employment arrangement between Dr. Virenda Bisla and Dr. Akhtar Parvaiz, both doctors in Chicago. Bisla hired Parvaiz as an employee in 1998, under an agreement specifying that Parvaiz would have the opportunity to become a 50% partner in Bisla’s medical company after three years, if he met certain criteria. It also specified that Bisla would provide medical insurance for Parvaiz and his family, and malpractice insurance in Indiana for Parvaiz.

Neither type of insurance was provided to Parvaiz, according to the First District. And when the three years in the agreement had passed, Bisla did not offer Parvaiz a 50% share of the company, as agreed. Instead, he offered Parvaiz a 45% share, spread over five years, and presented him with a new employment contract and stock purchase agreement. Bisla told Parvaiz that it was in his best interests to sign these papers, but Parvaiz refused because they did not comply with the original employment agreement. He continued working for Bisla’s company for the next five years, but believed that they were using an oral contract since the first employment contract had expired.

The next year, Bisla’s company was temporarily dissolved by the State of Illinois for nonpayment of a filing fee. Bisla did not tell Parvaiz about the dissolution, which automatically terminated their employment agreement. However, in 2005, Parvaiz began working for a competing medical company. When Bisla found out, he demanded a share of the proceeds, then fired Parvaiz and eventually brought a lawsuit seeking to stop him from competing. Parvaiz countered that he believed the agreement was over. The trial court agreed, finding that their agreement was invalid because the employment agreement was breached by both the temporary dissolution and Bisla’s refusal to make Parvaiz a partner. It denied the injunction Bisla sought against Parvaiz, and Bisla appealed.

In its analysis, the First District Court of Appeal said Bisla would only be protected by the contract if it was valid and in force at the time of the alleged breach. Bisla argued that the contract was still valid because seeking a modification does not constitute repudiation, an argument that the court did not agree with. Citing Marwaha v. Woodridge Clinic, S.C., 339 Ill. App. 3d 291, 790 N.E.2d 974 (2003), it noted that caselaw says non-competition clauses expire when their employment agreements do.

Furthermore, the court wrote, Bisla’s failure to offer Parvaiz a 50% equity share in the company constituted a material breach of the contract, which also invalidated the covenant not to compete. And arguments that the dissolution and reinstatement shouldn’t matter fail, the court said, because the employment agreement didn’t specify that it should survive a dissolution. Saying that “Bisla cannot successfully argue that the clause does not mean what its plain language sets forth,” the appeals court affirmed the trial court’s decision to deny an injunction against Parvaiz.

With Illinois courts more and more likely to invalidate covenants not to compete for doctors on public policy grounds, our Chicago non-compete clause litigation and business trial attorneys were particularly interested in the reasoning behind this decision. At DiTommaso-Lubin, we represent both employers and employees in non-compete clause lawsuits. Based in Oakbrook Terrace, near Wheaton and Naperville, Ill., and Chicago, our firm represents businesses and workers in the greater Chicagoland area and throughout Illinois, as well as in Wisconsin and Indiana. To set up a confidential consultation on your covenant not to compete litigation today, please contact us online or call 1-877-990-4990.