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

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Start-ups (specifically tech start-ups) generally don’t have much need for inexperienced or untrained students who just graduated and are now entering the workforce. Instead, they have a greater need of well-trained, knowledgeable, experienced workers to help them build their new venture into a profitable business. But they’re finding it increasingly difficult to hire those people in states that protect non-compete agreements.

Experts say that the rise of Silicon Valley as the heart of the technology world is directly related to California’s refusal to enforce any non-compete agreements whatsoever.

A non-compete agreement is part of an employment contract that prevents a worker from leaving their employer to work for a competitor. There’s usually a geographical limit of a few miles and a time limit around six months to a year, but companies are increasingly leaving those limitations behind and simply preventing their workers from ever working for any competitor.

The practice started with high-level executives who could potentially take sensitive trade secrets directly to a competitor, thereby ruining their former employer’s prospects. But more and more companies have been expanding their use of non-competes to cover all their employees – from those earning minimum wage, all the way to the top of the corporation.

Employee advocacy groups have fought hard against the use and enforcement of non-compete agreements and Big Business has fought just as hard in their favor. Large corporations trying to hold onto their employees at any cost have started looking for ways to punish their employees for leaving, rather than enticing them to stay. Continue reading

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This Article gives an excellent over view of non-compete agreement law in various states. It summarizes the law for these agreements in the following states: Arizona, Colorado, Georgia, Illinois, Missouri and New York. It provides a number of insightful tips on how courts are likely to view non-compete agreements depending on the facts of the case.  For instance, it concludes, in our opinion accurately, that Illinois courts will likely be more likely to enforce non-compete agreements if the employee has engaged in some sort of wrongful behavior such as misappropriating confidential information or starting the competing business using the employer’s computers and other resources.

With regard the to Illinois the article states:

Illinois courts generally disfavor employer-employee restrictive covenants.  Consequently, courts look for reasons not to enforce restrictive covenants and the fact that an employee is “low level” often creates an equitable reason for the court to refuse to enforce restrictive covenants.  However, bad conduct by a former employee, whether by taking confidential information or poaching former customers of the former employer, often will overcome a court’s reluctance to enforce a restrictive covenant against a low-level employee.

Historically, Illinois courts only enforced such restrictive covenants if the employer could demonstrate it had a legitimate protectable interest. Courts defined legitimate protectable interest to include “near permanent customer relationships” or confidential information.  In 2011, the Illinois Supreme Court revisited this issue in Reliable Fire Equipment v. Arredondo, holding that an employer must demonstrate both a legitimate protectable interest and the reasonableness of the scope (activity, time and geographic).  However, the Reliable Fire court also held that an employer could establish a legitimate protectable interest in ways other than confidential information or long-standing customer relationships, creating further confusion in the Illinois legal landscape.  This ruling required trial courts faced with a motion for temporary restraining order seeking to restrain a former employee from competing to focus on what interest an employer is seeking to protect and whether that interest is sufficiently clear at a preliminary stage such that a TRO is justified.   Generally, Illinois courts have looked to two key issues in recent years—has the former employee “taken” confidential information and is the former employee using such confidential information to pursue his former employer’s clients.  If the answer to either of these questions is yes, Illinois courts are likely to enforce a restrictive covenant.

An interesting dilemma has arisen in the last four years since the Illinois Appellate Court decided Fifield v. Premier Dealers Services.  The Fifield court held that at-will employment is inadequate consideration to support restrictive covenants until at least two years of at-will employment have passed since the agreement was put in effect.  This creates another hurdle for enforcing restrictive covenants against lower-level employees. Most low-level employees are employees at will.  Consequently, for an employer to be confident that its restrictive covenants will not fail for lack of consideration, some unrestricted consideration (e.g., a signing bonus) must be provided at the outset of the employment relationship.

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Minteq International, Inc. supplies materials to steel-makers. Minteq’s employees are represented by the engineers’ union of the AFL-CIO and covered by a collective bargaining agreement (CBA). In 2012, without bargaining or even notifying the union, the company began requiring new employees to sign noncompete and confidentiality agreements (NCCA) which barred employees from working for Minteq’s competitors for 18 months following their employment and disclosing confidential or proprietary information. They also included nonsolicitation and at-will employment clauses.

In 2014, the union filed an unfair labor practice charge against Minteq. The National Labor Relations Board found that Minteq violated the Fair Labor Standards Act (FLSA) by failing to afford the employees’ union notice or an opportunity to bargain over Minteq’s unilateral implementation of the NCCA. In a recent ruling, the U.S. Court of Appeals for the District of Columbia Circuit upheld the Board’s findings (Minteq International Inc., et al., v. Nat’l Labor Relations Board, No. 16-1276 (D.C. Cir. 2017)).

NLRB held that the noncompete agreement was a mandatory subject of bargaining not covered by the CBA. FLSA requires parties to bargain in good faith regarding “wages, hours, and other terms and conditions of employment.” As such, Minteq’s noncompete/confidentiality agreement was a mandatory subject of bargaining because it directly “settle[s] an aspect of the relationship between the employer and the employees.” (First Nat’l Maint. Corp. v. NLRB, 452 U.S. 666 (1981)). Continue reading

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In Silicon Valley, the heart of the technology industry, a company’s greatest asset is its talent. Their brains and the information they have access to are priceless, which is why, for many tech companies, it is imperative for them not to allow their employees to take such invaluable information directly to a competitor. It’s also why Waymo, Google’s self-driving car company, is suing Uber and one of Google’s former employees for allegedly stealing trade secrets.

According to Waymo, Anthony Levandowski, who was working on Google’s self-driving vehicle technology, left the company last year after allegedly stealing 14,000 documents containing trade secrets. Levandowski then started his own self-driving truck company, called Otto, which he sold to Uber earlier this year. Levandowski is now working as the head of Uber’s self-driving department, although Uber and Levandowski claim their technology bears no resemblance to Waymo’s self-driving technology. Continue reading

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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. Continue reading

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There’s no doubt that self-driving cars will be the next big thing in the automobile industry, which is why Google got so upset when a former employee allegedly took trade secrets regarding their self-driving technology to a competitor.

Anthony Levandowski claims he has been working on technology for driverless automobiles since he was in college. He entered a self-driving motorcycle into the Pentagon’s first competition for driverless vehicles in 2004, when he was still a graduate student at the University of California in Berkeley.

In 2007, Levandowski started working for Google on their maps program. When Google gave the go-ahead to start experimenting with self-driving automobiles, Levandowski was one of the first people chosen for the team.

Levandowski left Google early in 2016 to start his own business, a driverless truck company named Otto. That company was bought by Uber, at which point Levandowski became the vice president in charge of Uber’s driverless vehicle project. Continue reading

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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 Park Ridge and Mt. Prospect and Chicago 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.

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The Society for Human Resource Management recently published an interesting article discussing the use of non-compete agreements by businesses throughout the country and a White House paper on the issues raised by non-compete agreements.  The article states in part:

Noncompetes may be unpopular among employees, but they’re becoming more common, according to Michael Elkon, an attorney with Fisher Phillips in Atlanta.

As a practical matter, most courts won’t enforce them against lower-level employees, he noted, but their more widespread use is attracting political attention.

The White House paper criticized the growing use of noncompetes, saying that they impact nearly one-fifth of U.S. workers. It cited a 2013 study commissioned by The Wall Street Journalthat found a 61 percent rise from 2002 to 2013 in the number of employees getting sued by former companies for breach of noncompete agreements.

Approximately 14 percent of workers earning less than $40,000 are subject to noncompete clauses, including fast-food employees, warehouse workers and camp counselors, the White House said.

Noncompetes are even prevalent in California, where courts do not enforce them; 19 percent of workers in California report signing a noncompete. Many workers are not aware of the lack of enforcement in California when they sign the agreements, the report noted.

Several states ban noncompete agreements for certain sectors, occupations and time periods. Hawaii banned noncompetes for technology jobs, and New Mexico banned them for health care jobs. Oregon banned noncompete agreements that last longer than 18 months, while Utah has limited them to a year.

Delaware, Illinois, Massachusetts, Tennessee and Texas do not enforce noncompetes against physicians, the White House report noted.

However, some state courts strike offensive clauses from noncompetes if doing so renders the remaining language enforceable under the state’s law. Meanwhile, other courts, most recently the Nevada Supreme Court, reject this so-called blue penciling of noncompetes.

You can view the full article by clicking here. Continue reading

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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 Oak Lawn, Arlington Heights, 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. 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.

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The National Law Review contains a very helpful article on new developments in Illinois non-compete agreement law.  It discusses the requirement to work two years before a non-compete agreement can become enforceable if no other consideration or payment has been provided to enter into the non-compete agreement other than continued employment. The article states in part:

For those who find themselves embroiled in disputes involving non-compete and non-solicitation clauses, cases are often decided on the fundamentals of contract law. Any valid and enforceable contract requires three things. First, there must be an offer manifesting an intent to enter into a contract. Second, that offer must be accepted. Third, the element of consideration requires the parties to incur a detriment—to either do something they are not legally obligated to do or to refrain from doing something they otherwise could.

It is this third element of a contract that is often glossed over by businesses, lawyers, and sometimes even judges. In most contract disputes, Illinois courts do not inquire as to the adequacy of consideration, confirming only that some consideration exists and ending the examination there. But in non-compete cases, consideration can take center stage. Though this area of law is unsettled in Illinois, some measure of predictability as to how a court will assess consideration can be gained by looking at recent key decisions.

Fifield v. Premier Dealer Servs., 2013 IL App (1st) 120327, a 2013 case out of the Illinois First District Court of Appeals, pops up in numerous subsequent court decisions, and therefore warrants a close look. In it, an employee signed a contract preventing him from soliciting any of his employer’s customers or competing with his employer for business for a period of two years following his departure from the company, provided that his departure was not due to his own resignation. Three months later he resigned and went to work for a competitor. He and his new employer argued that the non-solicitation and non-competition provisions were unenforceable because there was not adequate consideration.

You can review the entire article by clicking here. Continue reading