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Illinois Court Refuses to Blue Pencil Non-Compete Agreement

If an Illinois employer drafts a post-employment restrictive covenant that is impermissibly overbroad, it cannot expect a court to modify it and enforce it, as a recent Third District appellate case illustrated.

Brian S. joined Deere Employees Credit Union (DECU) in 2009 as an investment advisor at its main branch in Moline, Illinois. His employment contract prohibited him from soliciting DECU’s clients or members for a two-year period following his termination. Brian resigned from DECU in 2015 and began working for a different financial services provider. He sent letters to up to 250 of his former DECU clients notifying them of his new situation.

DECU sued Brian for breach of the nonsolicitation covenants, seeking a preliminary injunction barring him from further contact with its members. Brian acknowledged his current clients included up to 17 DECU members, but argued the contract was unnecessarily broad, unenforceable as a matter of law, and could not be used to grant injunctive relief. The trial court found the covenants overly broad and unenforceable as written, but partly granted DECU’s request for injunctive relief by modifying the contract language and enjoining Smith’s contact with only those members he served while employed at DECU.

On interlocutory appeal, Brian argued the overly broad restrictive covenants invalidated his entire employment contract, therefore the trial court erred by enforcing any part of it, even granting narrower injunctive relief. On the “pivotal” question of whether DECU had established a likelihood of success on the merits, the Third District Appellate Court expressed doubt about DECU’s ability to enforce the contract as written. Writing for the court, Justice Wright noted that employee noncompete agreements must be “carefully drafted” because they infringe on free trade. The Illinois Supreme Court in Reliable Fire Equipment Co. v. Arredondo (2011 IL 111871) held they are enforceable when the language is “no greater than is required for the protection of a legitimate business interest of the employer, does not impose undue hardship on the employee, and is not injurious to the public.”

Cambridge Engineering Inc. v. Mercury Partners (378 Ill.App.3d 437 (2007)) held that a nonsolicitation clause must be reasonably related to the employer’s interest in protecting customer relations that its employees developed while working for the employer, and is not enforceable where it applies to “any customer” regardless of whether the employee had prior contact with the customer.

In contrast, Wright noted, the language in DECU’s contract “expresses an intent to discourage, if not prevent, [Brian S.] from targeting any, and therefore every, DECU member affiliated with the Moline main branch regardless of whether [he] had any contact with those members.

“The covenants … broadly foreclose Moline DECU members and clients, without any previous professional relationship to [Brian], from choosing [him] as their investment advisor until 2017, … negatively impact [Brian’s] ability to engage in his profession by preventing [him] from accepting new customers who may have been current or past clients [of] DECU [and] … could lead to a chilling effect on employee post-termination activities that would be injurious to the public marketplace and also place an undue hardship upon [Brian].”

Quoting from Cambridge, Wright concluded that judicial reformation of the problematic language in the contract “would give employers an incentive to draft restrictive covenants as broadly as possible, since the courts would automatically amend and enforce them to the extent they were reasonable in the particular circumstances of each case.” He added that DECU did not include severability language in the contract that would have permitted a court to salvage enforceable parts of it.

Thus the court concluded that DECU was not entitled to injunctive relief and vacated the lower court’s preliminary injunction in its entirety.

Our Chicago non-compete agreement and business dispute 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 lawyers 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 Lombard, Addison, Oak Brook and Chicago have substantial experience in restrictive covenant and breach of contract cases, and we are proud of our record of strong results.

DiTommaso Lubin Austermuehle 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. Our firm has also handled many shareholder and LLC disputes between owners of closely held corporations, and LLCs.

Based in Oakbrook Terrace and downtown Chicago, our Winnetka and Wilmette non-compete clause and business dispute lawyers take cases from Naperville and St. Charles 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.