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

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It is well settled that “Illinois courts abhor restraints on trade” and therefore “postemployment restrictive covenants are carefully scrutinized . . . because they operate as partial restrictions on trade.” McInnis v. OAG Motorcycle Ventures, Inc., 2015 IL App (1st) 142644 at ¶26; see also Medix Staffing Sols., Inc. v. Dumrauf, 17 C 6648, 2018 WL 1859039, at *2 (N.D. Ill. Apr. 17, 2018) (granting motion to dismiss and noting that “[u]nder Illinois law, covenants not to compete are disfavored and held to a high standard”); Grand Vehicle Works Holdings Corp. v. Frey, 03 C 7948, 2005 WL 1139312, at *6 (N.D. Ill. May 11, 2005) (“Illinois courts disfavor and closely scrutinize restrictive covenants because they are repugnant to the public policy encouraging an open and competitive marketplace”); Cambridge Eng’g., Inc. v. Mercury Partners 90 BI, Inc., 378 Ill.App.3d 437, 447 (1st Dist 2007) (refusing to enforce restrictive covenant).

For a restrictive covenant to be enforceable, the terms must be “reasonable and necessary to protect a legitimate business interest of the employer.”  Medix Staffing Sols., Inc. 2018 WL 1859039, at *2. Thus, a restrictive covenant is reasonable only if it: “(1) is no greater than is required for the protection of a legitimate business interest of the employer-promisee; (2) does not impose undue hardship on the employee-promisor, and (3) is not injurious to the public.” Reliable Fire Equip. Co. v. Arredondo, 2011 IL 111871, ¶ 17. “The employer seeking to enforce a restrictive covenant bears the burden of demonstrating that the full extent of the restraint is necessary for protecting its interests.” Cambridge Eng’g., Inc., 378 Ill.App.3d at 447. The employer must also establish a protectable interest in its customers by showing for example that it has near-permanent relationships with certain customers based upon the employer’s relationship with the customers. Giffney Perret, Inc, 2009 WL 792484, at *11. Here, the non-solicitation agreement fails to meet that standard and ITsavvy will not be able to meet its steep burden of proof.

A restrictive covenant that precludes an employee from solicting or selling to any of his former employer’s customers anywhere, with no geographic scope and no limitation based upon whether the customer did business with an employee or was a long-term customer of the employee before he or she began working for the employer is generally unenforceable in Illinois, unless the employee had contact with and/or worked with all or nearly all the employer’s customers.

An employer cannot demonstrate any valid basis for preventing an employee from soliciting customers with whom he or she never worked.  See AssuredPartners, Inc. v. Schmitt, 2015 IL App (1st) 141863, ¶ 42 (non-solicitation provision invalid where it went beyond protecting those customer relationships that employee developed while working for an employer); Cambridge Eng’g., Inc., 378 Ill.App.3d at 455 (same); Lawrence & Allen v. Cambridge Human Resources Group, 292 Ill.App.3d 131, 138 (2d Dist. 1997) (“[c]ourts are hesitant to enforce prohibitions against employees servicing not only customers with whom they had direct contact, but also customers they never solicited or had contact with while employed by plaintiff”); Trailer Leasing Co. v. Associates Commercial Corp., 96 C 2305, 1996 WL 392135, at *3 (N.D. Ill. July 10, 1996)) (holding customer non-solicitation provision unenforceable where it includes customers with whom employee had no contact). Continue reading ›

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In a dynamic world where the nature of work is evolving rapidly, the Illinois Freedom to Work Act stands as a beacon of hope for both employees and employers alike. This legislation, enacted in 2017, brought about significant changes in Illinois’ labor laws, fostering a more flexible and worker-friendly environment. In this blog post, we will delve into the key provisions of the Illinois Freedom to Work Act and explore how it has reshaped the employment landscape in the state.

Understanding the Illinois Freedom to Work Act

The Illinois Freedom to Work Act is a landmark piece of legislation designed to empower workers and enhance economic freedom. It eliminates the use of non-compete agreements for low-wage employees, providing them with the opportunity to seek employment without restrictions after leaving a job. The act was signed into law by then-Governor Bruce Rauner and has since created a more level playing field for employees in Illinois.

Key Provisions of the Act

  1. Non-Compete Agreements Limited: One of the primary aims of the Illinois Freedom to Work Act is to restrict the use of non-compete agreements for low-wage employees. This means that workers in lower-income positions are no longer bound by these restrictive covenants that prevented them from pursuing similar roles in the same industry after leaving their current job.
  2. Minimum Wage Threshold: To be considered a low-wage employee under the act, the individual’s earnings must not exceed the greater of either the applicable federal, state, or local minimum wage. This ensures that the legislation targets those who are most vulnerable to exploitation in the labor market.
  3. You must be given 14 days to review the agreement and told you have an opportunity for lawyer to review of the agreement.
  4. Protecting Employee Rights: The Act empowers workers by allowing them to challenge non-compete agreements in court. If an employer enforces an invalid non-compete agreement against a low-wage employee, the employee can seek legal remedies, including injunctive relief and damages.

Continue reading ›

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Non-compete agreements, often called restrictive covenants, are common legal tools used by employers to protect their business interests. In the state of Illinois, these agreements are subject to specific rules and regulations that both employers and employees should understand. This blog post will provide an overview of non-compete agreements in Illinois, including their purpose, enforceability, and key considerations.

Purpose of Non-Compete Agreements

Non-compete agreements serve as legal contracts between employers and employees. The primary purpose of these agreements is to protect the employer’s legitimate business interests. These interests may include safeguarding trade secrets, customer relationships, and preventing unfair competition. Non-competes are typically used in industries where employees have access to sensitive information and trade secrets, such as technology, healthcare, and finance.

Enforceability in Illinois

Illinois, like many states, has specific laws and regulations regarding non-compete agreements to balance the interests of both employers and employees. In general, for a non-compete agreement to be enforceable in Illinois, it must meet the following criteria:

  1. Legitimate Business Interest: The non-compete must protect a legitimate business interest, such as confidential information, trade secrets, customer relationships, or specialized training.
  2. Reasonable Scope: The agreement’s restrictions must be reasonable in terms of geographic scope, duration, and the nature of the activities restricted. Overly broad restrictions may be deemed unenforceable.
  3. Adequate Consideration: The employee must receive adequate consideration in exchange for signing the agreement. This can include a job offer, a raise, or other benefits.
  4. Public Policy: The agreement must not violate public policy or statutory law. For example, non-competes cannot prevent employees from pursuing their livelihood or career.
  5. Special Provisions for Low-Wage Employees: Illinois law contains special provisions that limit the use of non-compete agreements for low-wage employees, making it more difficult for employers to enforce them in these cases.

Continue reading ›

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Non-compete agreements are a common tool used by employers to protect their business interests. However, these agreements must strike a balance between safeguarding legitimate business concerns and respecting an employee’s right to pursue their career. Over the years, Illinois courts have issued several crucial decisions that provide guidance on the enforceability of non-compete agreements. In this blog post, we’ll explore some of these key Illinois court decisions and their implications for both employers and employees.

Recent Illinois decisions on non-compete agreements have clarified several important points:

1) Non-compete agreements under Illinois law are only enforceable if they protect a party’s legitimate business interests, as determined from the totality of the circumstances. This includes the near-permanence of customer relationships, the employee’s acquisition of confidential information through their employment, and time and place restrictions. Illinois law requires that in order be enforceable, a covenant not to compete must secure a “protectable interest” of the employer. Illinois courts recognize at least two such protectable interests: (1) where the customer relationships are near-permanent and but for the employee’s association with the employer the employee would not have had contact with the customers; and (2) where the former employee acquired trade secrets or other confidential information through his employment and subsequently tried to use it for his own benefit.

2) Non-compete provisions in employment agreements, which restricted distributor’s employees from engaging in post-employment activities of soliciting or inducing other employees to leave distributor’s employment, were found invalid restraints on trade, in that, provisions did not serve to protect any legitimate business interest recognized under Illinois law.

3) Non-compete clauses in employment agreements are unenforceable when they (1) impose restrictions greater than those necessary to protect legitimate interests of the protected party, (2) are oppressive to the restricted party, or (3) are harmful to the general public. Such was the case in Mickey’s Linen v. Fischer where Illinois decisions supported modifying a non-solicitation provision to cover only those customers for which the former employee had responsibility, and that the severability provision in Fischer’s Employment Agreement makes that result particularly appropriate.

4) In Unisource Worldwide, Inc. v. Carrara, the court ruled that where an employment contract is ambiguous and unintelligible, the non-compete clause in the agreement is unenforceable because there is no definite agreement on the essential terms of the restrictive covenant.

5) Lastly, in Vencor, Inc. v. Webb, the court found that a non-competition agreement is not contrary to the fundamental public policy of the state of Illinois, and thus Illinois law must govern this dispute. Here, both parties elected to have the agreement governed by Kentucky law, and the court discerned no reason why an Illinois court would find the agreement to be contrary to Illinois public policy.

Conclusion

Illinois court decisions on non-compete agreements have evolved to strike a balance between safeguarding legitimate business interests and protecting the rights of employees. Employers must carefully craft non-compete agreements that are reasonable in terms of duration, geographic scope, and the scope of activities restricted. Adequate consideration is a crucial factor, especially when entering into non-compete agreements with at-will employees.

For employees, understanding the enforceability of non-compete agreements and their rights is essential. Consulting with legal counsel is advisable when faced with the prospect of signing a non-compete agreement or when challenging the enforceability of an existing agreement.

These court decisions have helped shape the landscape of non-compete agreements in Illinois, emphasizing the importance of fairness and reasonableness in these contractual arrangements. It’s crucial for both employers and employees to stay informed about these legal developments to ensure that their rights and interests are protected. Continue reading ›

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As an employee, you may have come across the term “non-compete agreement” during your job search or employment. Non-compete agreements, also known as restrictive covenants, are contractual clauses that restrict an employee’s ability to work for a competing business for a certain period after leaving their current job.

In Illinois, non-compete agreements are governed by the Illinois Freedom to Work Act. This law, which went into effect in 2017, makes it clear that employers cannot restrict low-wage employees from taking other jobs or working for competitors.

However, for other employees, non-compete agreements may be enforceable under certain conditions. According to the Illinois law, for a non-compete agreement to be enforceable, it must be:

  1. Ancillary to a valid employment agreement: The non-compete agreement must be part of an employment contract, and the employee must receive consideration (such as a job offer, a promotion, or a bonus) in exchange for agreeing to the restriction.
  2. Reasonable: The non-compete agreement must be reasonable in scope, geographic area, and duration. This means that the restrictions must be necessary to protect the employer’s legitimate business interests and must not impose an undue burden on the employee.
  3. Not against public policy: The non-compete agreement cannot be contrary to the public interest or public policy. For example, it cannot restrict an employee’s right to work in their chosen profession or industry.
  4. The employer has not breached the employment agreement first. This can include engaging in illegal behavior which forces the employee to resign.

If a non-compete agreement meets these criteria, it may be enforceable in Illinois. However, even if an agreement is enforceable, it does not mean that it will be enforced by a court. Illinois courts will only enforce a non-compete agreement if it is necessary to protect the employer’s legitimate business interests and if the restrictions are reasonable.

It is important for employees to understand their rights and obligations under non-compete agreements. Before signing an employment contract that includes a non-compete clause, employees should carefully review the terms and seek legal advice if necessary. Employees should also be aware of their obligations under the agreement, including any restrictions on their ability to work for competitors after leaving their current job.

In summary, non-compete agreements can be a complex issue for employees in Illinois. While they may be enforceable under certain conditions, employees should be aware of their rights and obligations under these agreements and seek legal advice if necessary. By understanding the law and their rights, employees can make informed decisions about their employment and protect their career opportunities. Continue reading ›

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The Federal Trade Commission (FTC) recently proposed a new rule that could significantly impact the enforceability of non-compete clauses in employment agreements. This development could have far-reaching consequences for both employers and employees in Illinois and across the nation. In this blog post, we will provide an overview of the proposed rule and discuss its potential implications for employees in Illinois.

The FTC’s proposed rule aims to declare non-compete clauses as an unfair method of competition, thereby preventing employers from entering into new non-compete agreements with workers and requiring employers to rescind existing non-compete clauses. The FTC estimates that this rule could increase American workers’ earnings between $250 billion and $296 billion per year. Continue reading ›

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After passing one of the strictest non-compete laws in the nation, the District of Columbia Council has responded to criticisms about the bill by passing the Non-Compete Clarification Amendment Act of 2022 which significantly scales back key aspects of the non-compete ban law enacted back in 2021 but which has not yet gone into effect after the Council has delayed its enactment several times in response to feedback from employer groups.

The non-compete ban, passed by the Council in 2020 and enacted in 2021, sought to impose a near-universal ban on simultaneous and post-termination employment restrictions for employees working in D.C. Since the inception of the ban, it has been subject to much criticism and numerous extensions of its effective date. However, the Clarification Amendment, which will take effect on October 1, 2022, changes the scope of the ban from nearly all non-compete agreements to only those whose total annual compensation is less than $150,000 ($250,000 for medical specialists). Compensation is defined to include more than just salary but accounts for bonuses, commissions, overtime premiums, and vested stock as well but does not include “fringe benefits other than those paid to the employee in cash or cash equivalents.”

The Clarification Amendment will now proceed to the desk of the Mayor, where it is expected to be signed, and then will be subject to a 30-day congressional review period which likely will expire in mid-to-late November. The amendment contains a number of significant “clarifications” to the non-compete ban law and gives D.C. employers options for utilizing non-compete agreements and other policies, such as conflict of interest policies, that were set to be prohibited. Continue reading ›

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We have previously written about President Biden’s Executive Order in which he encouraged the Federal Trade Commission (FTC) to crack down on the “unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.” Since the issuance of that Executive Order the FTC has ramped up its efforts to curtail the use of such restrictive covenants using existing antitrust and unfair competition laws. Additionally, the FTC held a two-day workshop in December 2021, called “Making Competition Work: Promoting Competition in Labor Markets,” at which industry leaders and professionals held panel discussions on antitrust and labor issues.

However, until recently, the FTC had not issued any formal guidance outlining its strategy for accomplishing the outcome sought in the President’s Executive Order. Recently the FTC began to articulate a unified strategy to respond to the President’s challenge. Last month, we began to see the agency’s execution of that strategy.

In June, the FTC published an administrative complaint challenging an acquisition by Arko Corporation and its subsidiary GPM Investments, LLC of 60 gasoline and diesel fuel outlets located in Michigan and Ohio from the Corrigan Oil Company. As part of the sale, Corrigan agreed not to compete against Arko and GPM in the areas surrounding the 60 fuel outlets included in the sale, as well as other GPM locations encompassing in total more than 190 locations. The restrictive covenant part of the sales agreement precluded Corrigan from participating in the sale, marketing, and supply of gasoline and diesel fuel in the territory surrounding these locations.

The FTC’s complaint challenged the sale as anticompetitive because of the particulars of the non-compete provisions in the sales agreement and its anticompetitive effect on the impacted markets. As mentioned, the fuel outlets being acquired are located in Michigan and Ohio. However, the FTC has alleged that the non-compete provisions reduced (or eliminated) GPM’s competitors in market territories throughout Michigan, and lacked any “reasonable procompetitive justification” for their application to the GPM locations unrelated to the transaction. The FTC alleges that these covenants not to compete violate Section 7 of the Clayton Act and Section 5 of the Federal Trade Commission Act. Continue reading ›

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As non-compete agreement attorneys, we often write on the topic of restrictive covenants and developments in the area of law across the country. Frequently, we review judicial opinions that involve courts analyzing the specific terms of non-compete agreements in order to determine whether to uphold or invalidate such agreements. In this post, we will examine a recent decision in which a former employer succeeded in obtaining a temporary restraining order (TRO) enjoining several former employees from working for a competitor. The twist in this case is that none of the former employees are accused of violating a non-compete agreement by working for the competitor because none of the former employees had a non-compete agreement.

DistributionNOW (DNOW), the plaintiff in the suit, is a Houston-based distribution company for the energy sector. The defendants in the suit are several former employees who left DNOW to work for a competitor, Permian Valve. According to the former employer’s complaint, the four defendants left DNOW to join a competitor and allegedly took confidential files and documents containing sensitive and proprietary information with them. Additionally, the complaint accuses one of the defendants, Toby Eoff, of poaching at least 20 employees from DNOW to join the competitor.

Eoff was the former majority owner of Odessa Pumps, a company that DNOW purchased for over $170 million. The complaint alleges that Eoff stayed with DNOW until he retired in April 2022 from his position as Executive Vice President. After retiring, the complaint alleges that Eoff took with him multiple files that contained “highly sensitive DNOW business information.” The complaint also alleges that another of the defendants took an employee list with him when he left DNOW. Continue reading ›

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Earlier this month, the New Jersey Assembly’s Labor Committee passed bill A3715, designed to sharply limit the availability, use, and enforceability of restrictive covenants such as non-compete agreements by New Jersey employers. The stated purpose of the bill is to preclude the use of certain post-employment restraints of covenants with certain groups of employees including low-wage workers, students, employees under 18 years old, and seasonal and temp workers. The bill would also preclude the use of restrictive covenants with independent contractors. This new bill is similar in many ways to bills that have been proposed in various state legislatures recently and enacted into law in states such as Massachusetts, Illinois and Washington.

Bill A3715 seeks to codify certain common law restrictions on the use of non-compete agreements including those regarding the scope of a non-compete, which require that a non-compete be no broader than necessary to protect the employer’s legitimate business interests. The bill also seeks to introduce new obligations and restrictions including a notice requirement, duration limitations, geographic limitations, garden leave requirement, and choice of law restrictions. Additionally, the bill would eliminate the “blue pencil” doctrine, by precluding a court from judicially modifying or revising an overbroad or impractical restrictive covenant so that it is judicially enforceable while still reflective of the parties’ intent.

If enacted, employers would be required to provide employees with at least 30 business days’ notice of the terms of the non-compete either before the employment begins or the non-compete becomes effective. Additionally, an employer must provide a post-employment notice to employees within 10 days from the termination of employment stating whether the employer intends to enforce its restrictive covenants.

The bill would limit the duration of such restrictive covenants to 12 months from the termination of employment. It would also prevent employers from enforcing covenants not to compete against former employees who simply leave the state of New Jersey, which could severely limit the effectiveness of such restrictions given the state’s relatively small size and proximity to populous neighboring states such as New York. Additionally, the geographic scope of non-competes would be limited to the geographic area in which the employee worked or had a material presence during the two years preceding termination of the employment. Continue reading ›

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