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Customer and Employee Non-Solicitation Agreements Are Not Uneforceable Federal Court Rules

A non-solicitation covenant is extremely helpful when it comes to protecting valuable business information when a company has expended substantial amounts to build a stable work force and has invested in developing permanent relationships or very long term relationships with its customers with long term contracts.  The Court in Instant Tech., LLC v. DeFazio, 12 C 491, 2014 WL 1759184 (N.D. Ill. May 2, 2014) recently addressed the enforceability of non-solicitation covenants of former employees of an information technology company. The non-solicitation agreements barred soliciting customers to go to a competitor as well as employees of the IT staffing company.

Not to be confused with a non-compete agreement, non-solicitation covenants do not put a restriction on one’s ability to practice their trade or prohibit them from pursuing their chosen profession, as a restrictive covenant would. In this case, the definition of a client versus a candidate is where the Court draws the line when determining whether a violation the non-solicitation covenant occurred.

In the case of Instant Tech., LLC v. DeFazio, the Court examines the enforceability of a non-solicitation covenant in regards to an information technology staffing company and its former employees allegedly breaching such covenants. Instant entered into agreements with IT companies. Instant’s provided people with IT skills to become job candidates. Upon employment, the Defendants signed an Employment Agreement which, among other things, contained a Convent Not to Solicit Instant’s Clients or Employees. In this case, Instant brought the claim that their employee Defendant’s had, among other things, breached their Non-Solicitation covenant.

After leaving Instant, several employees began working for a new company, Connect, a competing IT staffing firm. Instant Technology, LLC (“Instant”) claimed that the non-solicitation covenant prohibited former employees from soliciting (i) candidates Instant had place or attempted to place with a client,  (ii) any client employer where Instant had placed a candidate or with whom Instant has signed a Master Service Agreement and (iii) employees of Instant from going to work for a competitor.

The Court invalidated the non-solicitation restrictions as to some of the employees for failure of consideration as they hadn’t work for Instant long enough as they had been employed for less than two years. It ruled that recent Illinois Appellate decisions absent other payment to the employees often required two years of employment for the restrictions to become effective.  As to the employees who had worked for Instant for more than two years it found the restrictions inoperative and invalid due to the nature of Instant’s business.  It found that there was no real confidential information to protect, no long term near permanent customer relationships and therefore the restrictions were unduly burdensome and against public policy.  Factors the court considered include, but were not limited to, “the near-permanence of customer relationships, the employee’s acquisition of confidential information through his employment, and time and place restrictions.”

The Court also found the employee non-solicitation agreement invalid as Instant had constant turn over in its work force and did not need or use the non-solicitation provision to maintain a stable work force.

This case highlights the very particularized and detailed factual inquiry a court uses to determine the validity of non-solicitation agreements which courts find to be valid when there are near permanent customer relationships and a lot sensitive customer information which the business needs to protect.The business litigation attorneys at DiTommaso Lubin near Chicago and Oak Brook represent business owners and professionals regarding non-competition agreements, covenants not to compete, non-solicitation agreements, 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.