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Two Years of Employment May not be Needed to Make Noncompete Agreement Enforceable

When a former employee of a company is accused of soliciting his ex-coworkers to defect to a competitor, can he challenge enforcement of a nonsolicitation agreement on the sole ground that he did not work for the company long enough? One more Illinois federal court has answered that question in the negative.

In an opinion released March 10, 2016 in R.J. O’Brien & Associates LLC v. Robert Williamson, 2016 WL 930628, U.S. District Court Judge Robert W. Gettleman denied summary judgment to a defendant employee who argued that two years’ employment is required as consideration for restrictive employment covenants. The defendant, a former trader for the Chicago-based futures brokerage R.J. O’Brien & Associates, signed confidentiality and nonsolicitation agreements upon accepting employment at the firm in 2012. He also signed an “associated persons” agreement. The agreements stipulated, among other things, that defendant could not solicit O’Brien employees or customers for one year after leaving the company. According to the facts presented in Judge Gettleman’s opinion, defendant left the firm after one year in April 2013 and took a position at Wells Fargo Securities. Thereafter, he remained in contact with several O’Brien traders whom he attempted to convince to leave the firm to join Wells Fargo, successfully recruiting at least one. O’Brien brought a two-count complaint against him alleging breach of the agreements.

Noncompete agreements and other restrictive covenants are usually signed by an employee upon accepting employment, and are often intended to prevent pilfering of clients or trade secrets by those employees when they separate from the company. In some cases, such as the one at hand, businesses also seek to prevent a former employee from siphoning their human talent. Illinois, like most states, enforces restrictive employment covenants as long as they meet certain requirements. First, there must be some consideration, or promise, offered by the employer in return for the employee’s agreeing to refrain from taking certain actions upon termination of employment.

The Illinois Supreme Court has never expressly ruled on what constitutes adequate consideration for an enforceable restrictive covenant in the employment context. In the absence of direction from the state’s highest court, state appellate courts and federal district courts have attempted to fill the void. A few have adopted a bright-line rule of two years of employment. Other courts deciding the question have found it to be case-specific and dependent on a variety of factors, including the employee’s total compensation and the circumstances surrounding his separation from the company.

In this case, the defendant argued that he should not be held to the agreements he signed because his term of employment was under two years. In rejecting this argument, Judge Gettleman embraced the reasoning of the courts that have concluded the Illinois Supreme Court would decline to adopt the two-year rule. Gettleman suggested that an employee who voluntarily quits, as is the case here, should be treated differently from one who is involuntarily terminated in claiming inadequate length of employment sufficient to bind him to an agreement. He noted that “at will” employment can make any promise of future employment “illusory.”  “Plaintiff did nothing to alter the terms of defendant’s employment,” the judge wrote, adding that not only did defendant receive generous salary and commissions from O’Brien, but the firm was subjected to liability if defendant violated trading rules.

The merits of the case are still to be decided, but in this case, the defendant cannot avoid trial on the merits based on lack of adequate consideration.

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 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 Aurora, Oakbrook Terrace and Wheaton 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 Yorkville and Oswego non-compete clause lawyers take cases from Naperville, Geneva 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.