Articles Posted in Non-Compete Agreement / Covenant Not to Compete

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The federal Fair Labor Standards Act (FLSA) defines overtime as any time spent working after eight hours a day or forty hours a week. It also requires employers to pay their workers one and one-half times their normal hourly rate for all the overtime they spend working. Some employers maintain agreements with their workers in which, instead of additional wages, the workers are compensated in the form of extra paid time off, which is not always legal.

Most employers are required to compensate their workers for overtime by paying them the premium overtime rate, but there are exceptions to that rule. For example, government employees can legally receive overtime compensation in the form of one and one-half hours of paid time off for every hour of overtime they work. But there is a limit of a total of 480 overtime hours that are eligible for this method of compensation, and once that limit has been reached, the employees must be compensated in the form of additional wages.

According to an investigation conducted by the U.S. Department of Labor (DOL), the Puerto Rico Police Department was using paid time off to compensate police officers for the overtime they worked, but the department did not pay overtime wages when officers worked more than 480 hours of overtime.

The DOL’s investigation further found the police department had not compensated former police officers for the compensatory time they had built up by the time their employment was terminated. They also did not pay canine officers for the time they spent taking care of dogs for the police department, and did not pay academy cadets the proper compensation for the overtime hours they worked performing activities that were required by the department. Continue reading

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Non-compete agreements were initially included in employment contracts with high-level executives at tech companies, but in recent years employers have increasingly been including them in their contracts with almost all their workers.

Non-compete agreements were designed to protect the company’s legitimate business interests by preventing executives with trade secrets and/or valuable relationships with customers from taking those resources to a competitor across the street. However, in an attempt to make their employment contracts air tight, some employers have gotten a little carried away and created non-compete agreements that make it unreasonably difficult for their workers to find any other form of employment at all.

Despite the increased propensity for and strictness of these agreements, many companies don’t bother to enforce them when their lower-level workers start working for a competitor in another region. But when an employer does try to enforce what might be considered an overly restrictive non-compete agreement, workers have been known to fight back, arguing that the agreement is too strict to be legally enforceable. Continue reading

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Non-compete agreements were originally created as a way for businesses to prevent competitors from poaching their employees. If a high-level executive who knows a lot about the company’s trade secrets and/or has established valuable relationships with clients takes those assets to a competitor working just around the corner, the result could be disastrous for the worker’s former employer.

In order to prevent that from happening, most employers include non-compete agreements in almost all their employment contracts. These agreements usually specify a geographical area in which the employee cannot work for a competitor in a given time frame (usually six months to a year).

Although non-compete agreements can be an effective way for companies to protect their legitimate business interests, some companies have become overzealous in their attempts to hold on to their workers and have included non-compete agreements in all their employment contracts, even with their lowest-paid employees. Continue reading

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When someone makes a promise, many people will ask them to “put it in writing” as a way to make sure they follow through. These written documents then form contracts that can be upheld in court if necessary, but the courts don’t always agree to uphold a contract. Just because it was signed and agreed upon by both parties at one point in time does not necessarily make a contract legally binding.

One promise that employers are having an increasingly difficult time enforcing is the noncompete agreement. It’s an agreement included in an employment contract in which both the employer and the worker agree that the employee will not work for a competitor. Noncompete agreements were originally designed to protect the vested interest employers have in their high-level executives – the ones who are most likely to have access to sensitive information, trade secrets, and important relationships with clients. For these kinds of employees to leave with all that business and work for a competitor across the street could be disastrous for a company.

But in their efforts to make iron-clad noncompete agreements, employers sometimes overstretch and include requirements that make it unreasonably difficult for the employee to find any work at all after their employment ends. Continue reading

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A recent trade secrets case in the U.S. District Court for the Central District of Illinois may make individuals think twice before they attempt to recruit a proxy to get around a noncompete clause. (Orthofix Inc. v. Melissa Gordon (2016 WL 1170896))

Medical device company Orthofix Inc. sued former sales representative Melissa G. for violating the non-solicitation, unfair competition, and nondisclosure provisions of her employment contract; appropriating trade secrets in violation of the Illinois Trade Secrets Act (ITSA); and tortious interference with its business relations.

Orthofix sells “bone growth stimulators,” which purportedly promote the healing of broken bones, to physicians. Melissa worked for Orthofix from 2007 until March 2013. Melissa’s sales territory was central Illinois, later expanding to Chicago, and her job involved keeping detailed notes on physician clients. Upon hire, she signed an agreement promising not to do business with Orthofix customers or compete with the company for one year following separation, nor disclose its trade secrets or confidential information. Continue reading

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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. Continue reading

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When a company sues a former employee for breaching confidentiality and solicitation agreements, it needs more than generalized accusations in order to hold up in court. Bridgeview Bank Group employed Thomas M. as a senior vice president and SBA loan officer from 2013 to 2015. Thomas originally signed a noncompete agreement that prohibited him from engaging in SBA lending for six months after termination, but after he was dismissed by the company, the contract was modified as part of a severance agreement. He was allowed to compete with Bridgeview but had to refrain from soliciting Bridgeview clients or employees for one year, and from making “disparaging” comments against the company. He was also required to maintain the confidentiality of Bridgeview’s information.

More than four months after Thomas’s termination, Bridgeview brought claims against him for breach of contract and fiduciary duty, and tortious interference with business relationships. The company claimed that Thomas had contacted its customers, divulged confidential information, and made disparaging remarks about Bridgeview, alleging that he had interfered with “one or more contractual or prospective contractual relationships.” However, as noted by the First District Appellate Court on appeal, Bridgeview identified no specific customer, confidential piece of information, or disparaging comment in its complaint. Bridgeview also sought a temporary restraining order against Thomas, but provided no more in the way of documentation than e-mail messages Thomas supposedly sent to himself on his last day of work, containing an income statement, various internal passwords, and a list of about 3,000 contacts which reportedly included Bridgeview staff and prospective customers. Continue reading

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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. Continue reading

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If you need to ask whether or not you can do a certain thing, the answer is probably no. When Thomas Dotoli and his wife drafted a contract to sell their companies to their daughter-in-law, Cheryl, they included a clause that allowed a court to modify the non-compete agreement if the court deemed it to be too broad. But not all courts have the authority to rewrite contracts.

Non-compete agreements are pretty standard in most business contracts. They’re designed to protect the business interests of both parties, ideally without infringing too much on the other party’s legitimate business interests.

In the contract in question, Cheryl, as the owner and operator of Associated Beverage Systems of the Carolinas, was prevented from doing business in either North Carolina or South Carolina for a period of five years after purchasing the companies from the Dotolis for $10,000. The contract provided that a court could revise the terms of the agreement if it found them to be unreasonable.

When Associated Beverage began conducting business in both North and South Carolina, the Dotolis sued Cheryl, her company, and Loudine, their son and Cheryl’s husband, for tortious interference as well as deceptive and unfair practices. Loudine was charged with breach of contract. Continue reading

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This video provides a very good summary of recent Illinois non-compete agreement law:

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.