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Global Economy Meets Geography Limit in Non-Compete Agreement

As our economy continues to expand all over the country and the globe, it forces us to reconsider some of the ways in which we do business.

For example, when companies started including non-compete agreements in their contracts with their employees, the federal and state governments allowed it – as long as the non-compete agreements met certain requirements. Chief among those requirements were a time limit and a geographical limit. Ideally, non-compete agreements should protect the legitimate business interests of the company (by making sure employees don’t go to a direct competitor with trade secrets), without severely restricting further employment opportunities for the worker.

But as companies continue to grow and expand into national and international markets, their competitors can reasonably be considered to be operating just about everywhere. That’s the case Horizon Health Corp. is making in its lawsuit against Acadia Healthcare Co. Inc. and the individual Acadia employees who were allegedly bound by a non-compete agreement when they were working for Horizon.

The contract prohibited the employees from going to work for another “psychiatric management company,” for one year after termination of their employment with Horizon, but there was no geographic limit to the non-compete agreement.

The employees are arguing that, because of its failure to include a geographic limitation, Horizon’s non-compete agreement is unenforceable. Despite the fact that Texas state law clearly requires limitations on both time and geography in order to enforce non-compete agreements, the Texas trial court that first heard the case granted summary judgment to Horizon. The employees appealed that decision, and although the appellate court upheld the non-compete agreement, it dismissed Horizon’s claims for loss of future profits. The case will now be heard by the Texas Supreme Court and it is unclear which way it will lean.

Since the state enacted the non-compete law in 1989, the state supreme court has changed its interpretation of the law. Although it started out strongly enforcing the law to the letter, it has since expanded its understanding of the law to make it easier, rather than more difficult, to enforce non-compete agreements. For example, although the law states that financial compensation cannot be considered sufficient support to uphold a non-compete agreement, in 2011, the Texas Supreme Court ruled that financial compensation was related to protecting the goodwill and cooperation of the worker, and as such, could be considered sufficient support to uphold the non-compete agreement.

The case is interesting because it could have a significant impact on future non-compete agreements and employer/employee relationships throughout the state, and even the country, if other states follow Texas’s lead. A ruling in Horizon’s

favor will mean companies will be able to legally prohibit their employees from working for any competitor anywhere in the world.

That alone might not be so bad if courts continue to require non-compete agreements to include limits on the time frame, as well as the scope of activity performed by the employee – for example, prohibiting a pharmacist from working as a janitor for a competitor does nothing to protect the company’s business interests and may unfairly limit that worker’s ability to find future employment.

Our Chicago 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 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 Evanston and Wilmette have substantial experience in restrictive covenant and breach of contract cases, and we are proud of our record of strong results. We have successfully represented a number of doctors in non-compete, partnership and other business disputes.  We understand the complexities of physician partnership and non-compete agreements.

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 Park Ridge and Oak Park non-compete agreement and business dispute lawyers take cases from Lake Forest and Deerfield 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.

Vincent L. DiTommaso

DiTommaso Lubin Austermuehle’s Oak Brook, Waukegan, and Aurora litigation attorneys have more than three decades of experience helping clients unravel the complexities of Illinois and out-of-state non-compete and trade secret theft laws. Our Chicago business dispute attorneys also represent individuals, family businesses and enterprises of all sizes in a variety of legal disputes, including disputes among partners, shareholders and LLC members as well as lawsuits between businesses and and consumer rights, auto fraud, and wage claim individual and class action cases. In every case, our goal is to resolve disputes as quickly and successfully as possible, helping business clients protect their investments and get back to business as usual. From offices in Oak Brook, near Hinsdale and Willowbrook, we serve clients throughout Illinois and the Midwest.