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Federal Courts in Illinois Continue to Enforce Non-Compete and Non-Solicitation Agreements Even Absent Two Years of Employment

Federal courts applying Illinois law continue to side with employers in maintaining that former employees should not avoid liability for breaching employment agreements based on duration of employment.

In Traffic Tech, Inc. v. Kreiter (2015 WL 9259544), the plaintiff, a Canadian-based transportation management company, hired defendant Jared K. as vice president of business development. The company paid him a $250,000 signing bonus and the equivalent in annual salary, plus commissions. Jared K. signed an employment agreement promising not to disclose or use the company’s confidential information or to solicit its clients or employees for 18 months after termination of employment. He also agreed not to engage in an “outside job” that would be in direct conflict with Traffic Tech’s business.

Jared K. became privy to a wealth of proprietary information while in the employ of Traffic Tech, including sales strategies and customer information. He voluntarily left the company after less than one year. He was later hired by a competing company. Traffic Tech accused Jared K. of being in negotiations with the competitor before he left its employ, and divulging confidential information in these communications. After Jared K. allegedly refused to sign a letter demanding he cease and desist from violating his employment agreement, Traffic Tech brought suit against him for breach of contract and fiduciary duty, among other claims. It also sued his new employer, Total Transportation Network. The company alleges that it lost customers and business as a result of the defendants’ actions. Jared K. moved to dismiss on the grounds that nonsolicitation clauses are invalid where employment ends within two years, and also where the clauses contain no limitations on geographic area or customers.

Post-employment restrictive covenants are usually intended to prevent pilfering of clients or trade secrets by employees when they leave a company. Illinois enforces these covenants as long as there is adequate consideration offered by the employer, although the Illinois Supreme Court has never expressly defined adequate consideration for an enforceable restrictive covenant. In predicting how the high court would decide, some state appellate and federal district courts have adopted the strict minimum two-year employment rule that Jared K. and other defendants invoke. Other courts have found the question to demand a “totality of the circumstances” test that depends on a number of factors, including the employee’s total compensation and the circumstances surrounding his separation from the company.

In rejecting the defendant’s motion to dismiss for lack of consideration, U.S. District Court Judge Robert M. Dow Jr. sided with Traffic Tech and the courts that have rejected a rigid two-year rule. “The Court agrees with Plaintiff … that the Illinois Supreme Court is not likely to adopt a two-year, bright-line rule in assessing whether an employee was employed for a ‘substantial period of time’ so as to establish adequate consideration to support a post-employment restrictive covenant,” Dow wrote in his opinion. Like other judges who have recently rejected the rule, Dow cited the fact that Jared K. voluntarily left employment and that he was well-compensated by the plaintiff.

On the question of the agreement’s lack of geographic scope, Dow cited the 2011 state supreme court case Reliable Fire Equip. Co. v. Arredondo, in concluding that the absence of such limitations does not render a nonsolicitation provision per se unreasonable as a matter of law. Traffic Tech asserted that Jared K. was free to compete with the company anywhere, as long as he did not solicit its existing customers. Dow found that an 18-month nonsolicitation covenant was reasonable in light of the nature of Jared K.’s responsibilities at Traffic Tech and the access he had to clients and company information, and that Traffic Tech’s breach of contract claim should be allowed to go forward.

Our Oak Brook non-compete agreement attorneys have defended high level executives in covenant not to compete and trade secret lawsuits. A case in which our firm defended a former Motorola executive was covered in Crain’s Chicago business. You can view that article by clicking here.

DiTommaso Lubin Austermuehle a firm of Chicago business dispute attorneys handles litigation over non-compete clauses for individuals and businesses of all sizes, including small or closely held businesses for whom competition from an ex-employee can be a serious threat. Our Chicago business lawyers with offices near Elmhurst, Winfield and St. Charles have substantial experience in restrictive covenant and breach of contract cases, and we are proud of our record of strong results.

DiTommas-Lubin a Chicago business litigation law firm represents both plaintiffs and defendants in such cases, and can also help stop litigation before it starts by reviewing contracts to look for covenants and clauses that could create problems later. Based in Oakbrook Terrace and downtown Chicago, our Plainfield and Orland Park non-compete clause lawyers take cases from Schaumburg and Arlington Hts. and many other cities throughout Illinois, as well as in Indiana, Wisconsin and the entire United States. To learn more or set up a free consultation, please contact one of our Chicago business dispute lawyers through the Internet or call toll-free at 1-877-990-4990 today.