What happens when an employee brings substantial expertise and business contacts in a specialized area to a new employer, then the employer changes ownership and attempts to enforce restrictive covenants against him? A recent Illinois appellate case AssuredPartners, Inc. v. Schmitt, 2015 IL App (1st) 141863 (2015) does not bode well for employer plaintiffs.
William S. was a wholesale broker in the lawyers’ professional liability insurance market (LPLI). In 2006 he became a senior vice president for ProAccess, a New Jersey-based insurance brokerage with offices in Chicago. William had formerly been a broker for ProQuest, where he built an extensive network of contacts and brokered millions of dollars in LPLI transactions with insurers in the U.S. and United Kingdom. He signed an employment agreement with ProAccess which provided that the restrictive covenants contained therein did not apply to LPLI activity, in acknowledgement of his pre-existing connections in the area.
In late 2011, ProAccess was acquired by AssuredPartners LLC. According to William, he was told he had to sign a new, more restrictive employment agreement to retain his job and that he could not alter any of its provisions. Schmitt resigned from AssuredPartners in 2013 and began brokering LPLI under a new retail brokerage, and, purportedly, soliciting ProAccess business and customers. AssuredPartners sued William to enforce the restrictive covenants. He filed a counterclaim seeking a declaratory judgment that the covenants were unenforceable as a matter of law. The circuit court found the covenants overbroad and unreasonable because William was “prevented from any business activity related to any type of professional liability insurance, not just LPLI.”
On appeal, AssuredPartners argued it had a legitimate protectable business interest in its “customer expiration” list, which contained information about LPLI customers and which it claimed William “blatantly” stole and used to siphon business away from ProAccess. The plaintiffs contended the noncompetition provision at issue was no broader than necessary to protect the company’s interest in the list.
Citing Arcor, Inc. v. Haas, 363 Ill.App.3d 396 (2005), the First District Appellate Court agreed with William that the noncompete provision was overbroad and unreasonable, even with a geographic limitation. “Nowhere in the [contract] … is there any qualifying language that limits the prohibition on [William’s] activities to only … LPLI,” Judge P.J. Liu wrote for the court, noting that William had extensive experience and expertise in cultivating LPLI business apart from his employment with ProAccess and AssuredPartners, and indeed this was the main reason he was hired. “We may reasonably conclude that all, if not most, of [William’s] business activity involved professional liability products and services related to the legal profession, as opposed to any nonlegal trades. … Yet [the covenant] prohibits [him] from working with all types of professional liability insurance. Like the covenant in Arcor, the restrictive covenant that plaintiffs seek to enforce acts as a blanket prohibition intended to bar [him] from working as a broker, in any capacity, within the entire universe of professional liability insurance business anywhere in this country.”
As for the customer expectation list, Judge Liu wrote: “Plaintiffs have no legitimate protectable interest in a business relationship with these retail brokers, vendors, or LPLI clients. Additionally, the provision imposes an undue hardship on [William] by forcing him to work in another country if he wishes to continue earning a living as a wholesale broker specializing in LPLI or any other type of professional liability insurance.” The court also found the nonsolicitation and confidentiality provisions overbroad in light of the information and customer relationships William had acquired prior to his employment. The court refused the plaintiffs’ request to enforce only the legally permissible sections of the agreement and upheld summary judgment in favor of William.
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.
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 Wheeling, Park Ridge, 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.
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.
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