Non-Compete Agreement / Covenant Not to Compete

Jimmy John’s Doesn’t Enforce Non-Compete Agreement So Judge Tosses Lawsuit — Our Chicago Non-Compete Agreement Lawyers Prosecute Non-Compete Lawsuits for Companies and Defend Employees in Non-Compete Agreement Lawsuits

May 20, 2015 | Peter S. Lubin and James V. DiTommaso

Non-compete agreements were initially intended to keep trade secrets safe. They originated in the tech industry where certain employees have the potential to take highly sensitive information with them when they leave the company. This could be disastrous to the company if employees decide to leave to work for a competitor and take all the confidential information they’ve been working with.

In order to prevent this from happening, companies had employees sign noncompete agreements (often as part of their employment agreement) stating they would not work for a direct competitor within a certain radius of the employer and a certain time frame (usually six months to a year).

Despite these sensible beginnings, employers of all industries have incorporated noncompete agreements into the employment contracts of just about all their workers. Even minimum wage employees on the bottom of the corporate ladder have been forbidden from working for a competitor. Continue reading ›

Arkansas By Way of Statute Joins the Growing Number of States Allowing Courts to “Blue Pencil” Covenants Not to Compete — Our Chicago Non-Compete Agreement Lawyers Litigate Covenant Not to Compete Cases throughout the Chicago Area

May 18, 2015 | Peter S. Lubin and James V. DiTommaso

Arkansas has now become a state that permits a court to “blue-penciling” of a non-compete agreement.

Governor Asa Hutchinson signed a statute (S.B. 998 or Act 921) permitting courts the flexibility to enforce those portions of a non-competition agreement that are reasonable and to delete overbroad, unenforceable provisions. Arkansas courts no longer have to strike down the entire covenant not to compete simply because one portion is unreasonable.

Under the wording of the Act, a covenant not to compete will be enforced if the agreement is ancillary to an employment relationship or part of an otherwise enforceable employment agreement or contract to the extent that:

the employer has a protectable business interest (such as trade secrets, customer lists, confidential information, intellectual property, customer lists, goodwill with customers, knowledge of business practices, methods, profit margins, costs, and other confidential information that increases in value by not being known to a competitor, training, and “other valuable employer data that the employer has provided to an employee that an employer would reasonably seek to protect or safeguard from a competitor”); and

the non-compete agreement is limited with respect to time and scope in a manner that is not greater than necessary to defend the protectable business interest.

Further, Act 921 states that the absence of a specific or defined geographic descriptive restriction in a non-compete agreement does not make the agreement overly broad if the agreement is limited with respect to time and scope in a manner that is not greater than necessary to defend the protectable business interest of the employer.

Moreover, under the new law, courts are given the authority to determine the reasonableness of the agreement and “shall” reform overly broad covenants. Prior to enactment of this statute, Arkansas did not allow blue-penciling, and a non-compete agreement had to be valid as written — the court could not narrow the overbroad provision. Employers doing business in Arkansas now have some statutory guidance, whereas before, it was “your guess is as good as mine.

8th Circuit Upholds Trial Court Finding that Non-Compete Agreement is too Broad and thus Enforceable due to Lack of Geographic Region and no Definition as to Capacity Employee is Barred From Competing

May 11, 2015 | Peter S. Lubin and James V. DiTommaso

The Federal Court of Appeals for 8th Circuit —the appeals court for federal district courts in South Dakota, Minnesota, Missouri, Nebraska, North Dakota, Iowa, and Arkansas —refused to enforce a corporate employer’s non-compete contract.

The Parties’ Dispute.

The case arose out of the following facts.NanoMech, a Delaware corporation with its principal place of business in Arkansas, researches and develops nanotechnologies. The company specializes in creating nanotechnology products for nanomachining, manufacturing, lubrication, energy, biomedical coatings, and strategic military applications.

NanoMech hired Arunya Suresh in March of 2010. NanoMech required Suresh to sign a confidentiality/nondisclosure agreement before hiring her. In that agreement she agreed to protect NanoMech’s interest in any information that was disclosed to her for the purpose of evaluating a potential employment relationship. As a condition of her employment, she later signed an employment agreement which she agreed would be governed by Arkansas law.

The contract’s non-compete clause stated:

COVENANT NOT TO COMPETE: The Employee agrees that during the term of this Agreement, and for two (2) years following termination of this Agreement by the Company, with or without cause, or, for a period of two (2) years following a termination of this Agreement by the Employee, the Employee will not directly or indirectly enter into, be employed by or consult in any business which competes with the Company.

During her employment with NanoMech, Suresh participated in projects involving use of nanointegrated materials and in manufacturing processes for nanoparticle-based products. She researched and helped develop one of NanoMech’s multi-component lubrication products called nGlide.

On May 2, 2012, Suresh gave notice stating that she intended to pursue her doctorate full-time. Later, in March 2013, NanoMech discovered that Suresh had in fact taken a job as an application chemist with BASF, a worldwide chemical company that develops engine lubricants. Continue reading ›

Non-Competition Agreements – When Can They be Enforced?

April 23, 2015 | Peter S. Lubin and James V. DiTommaso

Many clients come to us with misunderstandings with regard to non-compete agreements which are often called covenants not to compete. Some clients believe because an employee signed the agreement it is an iron glad and enforceable agreement no matter how broad and restrictive the terms of the agreement. Some employees come in with the belief that the agreements can never be enforced against them. So when are these agreements enforceable? It depends on many factors.

Each state has its own set of rules but there are many similarities in those states that enforce such agreement. In California, however, they are invalid and against policy. Illinois courts, on the other hand, enforce such agreements when they are:

In writing;
Made part of the employment contract;
Supported by valid consideration such as two years of employment or other payments;
Reasonable as to time and territory; and
Designed to protect the employer’s legitimate business interests.

The first two requirements are fairly self-explanatory. The last three, however, require analysis and review of the facts and circumstances.

Supported by valid consideration:

Consideration is a concept that applies to all kinds contracts, not simply to non-compete agreements. Contracting party must each obtain some consideration or benefit for entering into the contract. The contract must provide to each party a benefit to which that party would not be entitled if the party had not entered into the contract. With non-compete agreements, the affected employee might receive a new job, a promotion, a raise or a bonus for his or her agreement to enter into a non-compete or work for the employer for a significant period such as two years after entering into the agreement. In summary, for an employee to be bound that employee has to obtain some real benefit for entering into the agreement or work a long time for the company after signing the agreement.

Reasonable as to time and territory:

Non-compete agreements cannot usually be unlimited when it comes to time and territory. In other words, a business cannot subject former employees to an agreement with restricts them from competing everywhere, forever. Determining what is reasonable however depends on many circumstances.

Designed to protect the employer’s legitimate business interests:

Courts will only enforce restrictions on an individual’s right to work when the employer can show that those restrictions protect a legitimate business interest. Such interests can be protecting client relationships and confidential or secret information that provides a competitive advantage and was developed at substantial cost. In crafting covenants not to compete, employers should avoid restricting employees more than is needed to protect legitimate interests and the substantial investment they have made in developing competitive advantages for their businesses.

The Takeaway:

The truth is that many courts do not like to enforce covenants not to compete unless they are properly tailored and do like to put people out of work.

Non-Compete Agreement Invalidated By Federal Court For Being Too Broad

February 16, 2015 | Peter S. Lubin and James V. DiTommaso

Legal documents are known for being long and boring. They’re usually good for curing insomnia, but there is a reason for their length and detailed legal language. A good contract should prohibit all undesirable behavior without being too broad. For example, non-compete agreements, which are often included in employment contracts, are provided by the employer to prevent the worker from taking trade secrets and/or clients to a competing company.

Most non-compete agreements are restricted in time (usually six months to a year after employment ends) and geography (within a certain number of miles of the employer, or to a particular state or country). Noncompete agreements that extend too far in time or space risk being considered unenforceable in a court of law.

NanoMech, Inc. is a nanotechnology company that specializes in lubrication, energy, biomedical coatings, and strategic military applications. They attempted to write a noncompete agreement for their employees that was simple and straightforward. It read: “The Employee agrees that during the term of this Agreement, and for two (2) years following termination of this agreement by the Company, with or without cause; or, for a period of two (2) years following a termination of this Agreement by the Employee, the Employee will not directly or indirectly enter into, be employed by or consult in any business which competes with the Company.” Continue reading ›

Legit Enough to Quit? Restrictive Covenants and Legitimate Business Interests

January 22, 2015 | Peter S. Lubin and James V. DiTommaso

Legit Enough to Quit?
Restrictive Covenants and Legitimate Business Interests

As means of protecting ones business, it may seem that a restrictive covenant is one of the most secure. However, a restrictive covenant does not always provide the magnitude of protection wanted by those who enter into such an agreement. A three prong test of reasonableness must be satisfied. The covenant must serve a legitimate business interest, it must not impose an undue hardship and it must not be injurious to the public. Without a legitimate business interest, a restrictive covenant may not be enforceable.

A prime example of the necessity of a legitimate business interest to sustain a restrictive covenant can be seen in Gastroenterology Consultants of North Shore, S.C. v. Meiselman, 2013 IL App (1st) 123692, 989 N.E.2d 1126 appeal denied, 996 N.E.2d 12 (Ill. 2013). To achieve such a result, the company enforcing the non-solicitation agreement must demonstrate a legitimate business interest exists for such an agreement.

The Court takes a close look at the enforceability of a restrictive covenant when a doctor enters into such an agreement upon Plaintiff and later decides to take his professional work elsewhere. Plaintiffs try to enforce their restrictive covenant; however, the Court determines that the absence of a “legitimate business interest” renders the covenant unenforceable. Continue reading ›

How Long is Long Enough: Substantial Employment Standard for Non-Compete Agreements — Our Chicago Non-Compete Agreement Attorneys Litigate Non-Compete Agreement Cases Throughout the Chicago Area

January 21, 2015 | Peter S. Lubin and James V. DiTommaso

How Long is Long Enough: Substantial Employment Standard
for Non-Compete Agreements

Non-Compete covenants are among the strongest ways to protect against an employee potentially walking away with vital and, even more importantly, confidential information of the employer. Though it has long been established that timing plays a large role in whether or not an employment agreement is enforceable, a new holding has established that timing may not be everything when it comes to a post employment non-compete agreement.

A two-year time frame was considered to be the main threshold to satisfy “substantial” employment, however, the ruling in Montel Aetnastak, Inv.v. Miessen, 998 F. Supp. 2d 694 (N.D. Ill. 2014), demonstrates that because of inconsistencies between both lower Illinois courts and the Illinois Supreme Court, the implementation of a bright-line rule is not the determining factor when it come making a decision whether employment was “substantial”. Also, the Court determines that over broad post-employment non-compete covenant is not for the Court to narrow under the facts in that case. Continue reading ›

Uber Files Alleged Trade Secret Theft Case Against Former Executive

January 12, 2015 | Peter S. Lubin and James V. DiTommaso

Non-compete agreements are are commonly included in employment contracts, especially contracts for high-level executives. These agreements often require the employee to promise not to work for a competitor for a certain amount of time after leaving the company’s employment. They also usually require the employees to promise to protect the company’s trade secrets. Companies tend to be even more protective of their trade secrets when they are involved in a heated competition with another company.

One such company that has been kept on its toes is Lyft, a San Francisco-based ride-hailing company that allows customers to order a personal car using an app on their smartphone. Lyft has been in stiff competition with Uber, which provides similar products and services. The competition got tighter when Travis VanderZanden, Lyft’s former chief operation officer, left his position at the company, then went to work for Uber a mere two months later. Continue reading ›

“Non-Compete Agreements: Are they Iron Clad in Illinois?” — Our Chicago Non-Compete Agreement Attorneys Handle Defending and Prosecuting Covenant Not To Compete Lawsuits

January 2, 2015 | Peter S. Lubin and James V. DiTommaso

Covenant Not To Compete Enforceable or Not — Factors to Consider?: Reliable Fire Equip. Co. v. Arredondo (2011 IL 111871).

“Non-Compete Agreements: Are they Iron Clad?”

In Illinois, the standard for enforcing non-compete agreements has changed in recent years. Prior to a landmark decision in 2011, Illinois courts generally enforced non-competes that were sufficiently limited in scope, duration and geography, as long as the employer seeking to enforce the agreement could show that enforcement was necessary to protect a legitimate business interest. Courts generally found that there were only two legitimate business interests in need of protection: confidential information, and near-permanent customer relationships. Continue reading ›

Can You Leave a Company and Take Employees With You? – Chicago non-compete agreement lawyers near Oak Brook and Naperville

November 14, 2014 | Peter S. Lubin and James V. DiTommaso

“Can you leave a company, and take employees with you?”

In InsureOne, the Illinois Appellate Court for the First District upheld the trial court’s award of $7,670,210 in damages for alleged violations of non-compete and non-solicitation agreements.

Plaintiffs InsureOne Independent Insurance Agency, American Agencies General Agency, Inc., and Affirmative Insurance Holdings, Inc. purchased the assets of several insurance companies owned or controlled by James P. Hallberg, who covenanted not to compete with the Plaintiffs or to solicit any of their employees or customers for a period of time to be determined based on the circumstances of his termination. Hallberg was to run the company as its president, subject to the non-compete and non-solicitation covenants. The Plaintiffs retained several of Hallberg’s former employees, including his nephew, who also signed a covenant not to compete with, or solicit employees of the company for twelve months following termination. Continue reading ›