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Legit Enough to Quit? Restrictive Covenants and Legitimate Business Interests

Legit Enough to Quit?
Restrictive Covenants and Legitimate Business Interests

As means of protecting ones business, it may seem that a restrictive covenant is one of the most secure. However, a restrictive covenant does not always provide the magnitude of protection wanted by those who enter into such an agreement. A three prong test of reasonableness must be satisfied. The covenant must serve a legitimate business interest, it must not impose an undue hardship and it must not be injurious to the public. Without a legitimate business interest, a restrictive covenant may not be enforceable.

A prime example of the necessity of a legitimate business interest to sustain a restrictive covenant can be seen in Gastroenterology Consultants of North Shore, S.C. v.  Meiselman, 2013 IL App (1st) 123692, 989 N.E.2d 1126 appeal denied, 996 N.E.2d 12 (Ill. 2013). To achieve such a result, the company enforcing the non-solicitation agreement must demonstrate a legitimate business interest exists for such an agreement.

The Court takes a close look at the enforceability of a restrictive covenant when a doctor enters into such an agreement upon Plaintiff and later decides to take his professional work elsewhere. Plaintiffs try to enforce their restrictive covenant; however, the Court determines that the absence of a “legitimate business interest” renders the covenant unenforceable.

In this case specifically, Dr. Meiselman was required to enter into an employment agreement which specifically contained a restrictive covenant prohibiting solicitation of patients directly or in connection with, Plaintiffs, Gastroenterology Consultants of North Shore, S.C. (“GC”). Dr. Meiselman could not solicit any patients for a period of 36 months following the termination of his employment at GC. He also could not engage in any competitive business located within a 15-mile radius of GC and the Evanston Hospital Facilities.

In June of 2011, Dr. Meiselman made the decision to leave GC and join NorthShore University HealthSystem Medical Group. Upon beginning his new position at NorthShore, GC sent a letter to him accusing him of breaching the restrictive covenant of which he had previously entered. On a motion for preliminary injunction, the trial court held that GC failed to prove any legitimate interest in the patients being treated by Meiselman. Upon appeal, the opinion of the Court did not change.

The appellate court recognized a plethora of facts that pertain precisely to Dr. Meiselman’s relationship with his clients and their “near-permanent” relationship. These include the fact that Dr. Meiselman continued to treat patients with whom “he had developed relationships prior to affiliating with the plaintiff.” Id at. 202. Also that Dr. Meiselman was able to acquire patients’ individually through specific referrals and maintained those relationships after he left GC. Meiselman maintain a seemingly independent practice while associated with GC. This included the personal billing of his services as well as the fact that he maintained his own office and own phone number. Finding little likelihood for success on the merits, the appellate court affirmed the trial court’s decision to deny a motion for a preliminary injunction.

The Appellate Court stated the following with regard to the circuit court’s review of the evidence:

Additionally, the circuit court examined issues, such as: the level of the plaintiff’s investment of time, effort or money in the development of Meiselman’s relationship with his patients, Meiselman’s patient-referral sources, whether the plaintiff assisted Meiselman in the development of his professional practice through advertising or marketing, Meiselman’s maintenance of a separate office where he treated his patients, the fact that Meiselman, not the plaintiff, billed for his services, and whether Meiselman would not have developed his relationship with his patients and referral sources “but for” his affiliation with the plaintiff. To us, it is clear from the the circuit court’s memorandum opinion that it made the determination of whether the plaintiff established a legitimate business interest in need of protection based upon the totality of the circumstances in this case.

The business litigation attorneys at DiTommaso Lubin Austermuehle near Chicago and Oak Brook represent business owners and professionals regarding non-competition agreements, covenants not to compete, restrictive covenants and other claims throughout the Chicagoland area, including Cook, DuPage, Lake, Kane, McHenry and Will Counties; and in the Mid-West region, including Indiana, Wisconsin and Iowa. Our offices are near Naperville and Wheaton.  We have prosecuted and defended many covenant not to keep and non-compete agreement cases and have won for doctors and high level executives who have challenged and defeated non-compete agreements or we have obtained favorable settlements allowing them to compete. You can contact us by calling our toll free number (877) 990-4990 for a consultation or contact us online by filling out the form at the side of this blog.