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

Non-compete agreements were originally intended to prevent high-level executives from taking trade secrets and client relationships to a competitor, but companies have recently been expanding their use of non-compete agreements to almost all their employment contracts, even with workers earning minimum wage. It has become a way to lock low-wage employees into their current jobs because the terms of their non-compete contract often make it impossible for them to find work in a related field.

At the same time, while non-compete agreements might not do much harm to employees at the executive level because they have more bargaining power, workers at the lower levels often have little-to-no bargaining power and are often unaware of their options when it comes to their employment contracts. Whether that means negotiating the terms of their contract, or recognizing when the contract is invalid, low-wage workers tend to have fewer options than those higher up the ladder.

While there is no federal law putting limitations on when companies can use non-compete agreements, there are a variety of state laws that either ban or limit non-compete agreements within the state. California is famous for their total ban on non-compete agreements, while other states, like Washington, have recently added limitations to when companies can use non-compete clauses and what terms can be included in those contracts. Continue reading ›

Recently, a unanimous U.S. Third Circuit appellate court upheld payroll company Automatic Data Processing’s (“ADP”) non-compete agreements but remanded the case to the district court for tailoring. The federal appeals court reversed a decision by the district court which had found the covenants not to compete to be unenforceable. In reversing the lower court, the Third Circuit found that the non-compete agreements were necessary to protect ADP’s client relationships and goodwill, interests that New Jersey courts, “consistently recognize as legitimate.”

According to the Third Circuit’s opinion, ADP requires certain high-performing employees to sign non-compete agreements and similar pledges in order to qualify for stock option awards. These restrictive covenants prohibit employees who received stock options from working for a competitor for one year and from soliciting ADP’s current or prospective clients for two years after leaving ADP. Two former ADP employees challenged ADP’s practice, alleging that the restrictive covenants were more onerous than they needed to be. The Third Circuit found that the solution in such circumstances is to amend, or “blue pencil” the non-compete agreements, not find them entirely unenforceable. Continue reading ›

download-300x150download-1-300x150Super Lawyers named Chicago and Oak Brook shareholder oppression attorney Peter Lubin a Super Lawyer in the Categories of Class Action, Business Litigation, and Consumer Rights Litigation. Patrick Austermuehle of the Firm was named a Rising Star again and has a great deal of experience as a Chicago Defamation Libel and Slander Lawyer.  Peter Lubin and Patrick Austermuehle have achieved this honor for many years which is only given to 5% of Illinois’ attorneys each year.

Lubin Austermuehle’s Oak Brook and Chicago business dispute lawyers have over thirty years experience in litigating defamation, breach of fiduciary duty and shareholder oppression lawsuits.  Our Chicago non-compete agreement and trade secret theft lawyers prosecute and defend many types of unfair business practices and emergency business lawsuits involving injunctions, and TROS, covenant not to compete, franchise, distributor and dealer wrongful termination and trade secret lawsuits and many different kinds of business disputes involving shareholders, partnerships, closely held businesses and employee breaches of fiduciary duty. We also assist businesses and business owners who are victims of fraud.

Lubin Austermuehle’s Wheaton, Schaumburg, and Evanston business litigation attorneys have more than two and half decades of experience helping business clients unravel the complexities of Illinois and out-of-state business laws. Our Chicago business, commercial, class-action, and consumer litigation lawyers represent individuals, family businesses and enterprises of all sizes in a variety of legal disputes, including disputes among partners and shareholders as well as lawsuits between businesses and consumer rights, auto fraud, and wage claim individual and class action cases. In every case, our goal is to resolve disputes as quickly and successfully as possible, helping business clients protect their investments and get back to business as usual. From offices in Oak Brook, near Naperville and Aurora, we serve clients throughout Illinois and the Midwest.

Have you ever been so excited to receive a job offer that you signed the employment contract without doing much more than skimming it (if that)? It’s a common story, and there’s a reason the employment contract tends to be the last step in the process – sometimes even coming after the employee has already started working their new job.

If you’ve ever found yourself in the situation described above and you weren’t working in a state like California (which bans non-compete agreements), then the employment contract you signed probably included a clause forbidding you from going to work for a competitor. How much your contract prohibited any chances of employment you had in the future would have depended on the company, but many employers (especially large corporations) have been getting increasingly aggressive with their non-compete agreements in recent years and legislators all over the country have been retaliating. Continue reading ›

The Illinois Appellate recently affirmed a two-year bright-line continued employment rule for adequate consideration in non-compete cases if the only consideration is continued employment. Many, but not all, of the federal district courts in Illinois, do not follow this bright-line rule predicting that the Illinois Supreme Court will not follow it.  The Illinois Supreme Court has not yet addressed the issue. You can read the most recent Illinois Appellate decision here.  You can also listen below to the oral argument held in the Appellate Court before it reached this decision:

. Continue reading ›

New Washington Law Makes Sweeping Changes to Non-Compete Agreement Law 

Non-compete law in the state of Washington underwent sweeping changes last week with the signing into law of HB1450 (“Washington Non-Compete Act”) which targets the use of restrictive covenants within the state. The new law regulates the use and scope of non-competition agreements with both employees and independent contractors and restricts the use of non-poaching agreements in franchise agreements as well as policies against moonlighting. The new law takes effect on January 1, 2020.

Under the new law, a non-competition covenant will be void and unenforceable unless the following criteria are met:

  1. If the covenant is entered into at the commencement of employment, it must be disclosed in writing to the employee by no later than the date of the employee’s acceptance of the offer of employment;
  1. If the covenant is entered into at the outset of employment but will not take effect until a later date due to a foreseeable change in the employee’s compensation, the agreement must specifically disclose that it may be enforceable at a future time;
  1. If the covenant is entered into after the commencement of employment, it must be supported by additional consideration;
  1. The worker’s annual earnings must exceed $100,000 (in the case of an employee) or $250,000 (in the case of an independent contractor)based upon the income reflected in Box 1 of an employee’s IRS Form W-2 or an independent contractor’s IRS Form 1099; and
  1. The post-separation duration of the non-compete must last no longer than 18 months unless the employer can show by clear and convincing evidence that a longer duration is necessary to protect its business or goodwill.

The new law defines the term “non-competition covenant” to expressly carve out certain types of restrictive covenants such as employee and customer non-solicitation covenants, confidentiality/non-disclosure covenants, and covenants relating to the purchase or sale of a business or franchise. Continue reading ›

Employers across a wide variety of industries include non-compete clauses in their employment agreements. This practice has come under increasing fire in recent years. The latest being a petition filed by the AFL-CIO, Service Employees International Union, and a number of other labor and public interest groups with the U.S. Federal Trade Commission (FTC) calling for the FTC to its rulemaking power to issue a federal rule banning the use of non-compete agreements nationwide.

According to the petition, it is estimated that one out of every five U.S. workers — or about 30 million — is bound by a non-compete agreement. The petition seeks implementation of a new rule prohibiting employers across all industries from requiring workers sign agreements limiting their ability to work for a competitor. The petition does not distinguish between employees and independent contractors but calls for a ban on the use of non-compete agreements for both types of workers. According to these groups, non-compete agreements suppress the ability for employees to negotiate for raises, escape from undesirable work environments, or taking their experience and putting it to work by starting competing businesses of their own. If the FTC, which has a mandate to enforce antitrust and consumer protection laws, issues a rule banning non-compete agreements as is being requested, it would make companies that violate the rule subject to FTC enforcement and could cause such companies to incur liability.

The petition calls out by name companies such as Amazon, which the petition claims required temporary warehouse workers to agree to broad non-compete clauses and fast-food chain Jimmy John’s, which, prior to its 2016 settlement with the Illinois Attorney General, the petition claims restricted new hires from working for any competing restaurant within three miles.

The use of restrictive covenants (e.g. covenants not to compete, non-solicitation agreements, etc.) and other so-called anti-competitive practices by employers have become an increasing focus for labor advocates and public officials, including state attorneys general who have filed an increasing number of suits against fast food franchises and other employers who hire large numbers of low wage workers seeking to end the use of non-compete provisions. Silicon Valley heavy-hitters including Apple, Google, Adobe, and Intel agreed in 2015 to a $415 million settlement to end claims that they conspired together to implement an anti-poaching policy to avoid stealing one another’s employees. The FTC has come under pressure from lawmakers and consumer groups to join these labor groups and attorneys general in by taking a more aggressive approach to antitrust enforcement. Continue reading ›

After signing a non-compete agreement with his employer, president of a consulting firm resigned after less than a year, joined a competitor, and began to solicit his former clients and employees. The consulting firm sued, arguing that the ex-employee was bound by the terms of the non-compete and had breached his employment agreement. The Illinois Appellate Court found that the noncompete clause was unenforceable because the employee had not worked for at least two years after signing it, and the only consideration given in exchange for agreeing to the noncompete was continued employment.

Axion RMS, Ltd. is a company specializing in insurance brokerage and employee benefits consulting services. Michael Booth was hired by Axion in October 2010 as Vice President of Sales. He was later promoted to President of Axion in 2014. Booth and Axion entered into an employment agreement when he was hired, and the agreement included a noncompete clause that restricted Booth from soliciting Axion’s clients or employees during his employment and for a period of two years following termination of his employment.

In December 2015, Booth resigned from Axion in order to begin work with at HUB International Limited, a competitor of Axion. Axion later sued, alleging that, shortly after joining HUB, Booth began directly or indirectly contacting and soliciting Axion’s existing clients and customers, as well as several Axion employees. Booth filed a motion to dismiss the complaint in the circuit court. In his motion, Booth cited several cases from the Illinois Appellate Court which held that, where the only consideration given to an employee in exchange for signing a non-compete agreement is continued employment, the employee must work for at least two years after signing the covenant in order for there to be adequate consideration. Booth argued that, as he had resigned from his position less than a year after agreeing to the non-compete, it was unenforceable. Continue reading ›

Employers in New Jersey must review their current policies and practices to ensure compliance with a new statutory prohibition on the inclusion of non-disclosure provisions in employment contracts or settlements involving discrimination, harassment, or retaliation claims. The new law, signed by New Jersey governor, Phil Murphy, on March 18, 2019, and effective immediately, states that employers cannot insist that employees keep confidential the details of such claims or settlements. The law makes clear though that it should not be construed as prohibiting employers and employees from entering into non-compete agreements and confidentiality agreements relating to proprietary information, such as non-public trade secrets, business plans, or customer lists or information.

The law renders any provision in an employment contract that waives “any substantive or procedural right or remedy relating to a claim of discrimination, retaliation or harassment … against public policy and unenforceable against a current or former employee who is a party to the contract or settlement.” The law also does not permit prospective waivers of any right or remedy under the New Jersey Law Against Discrimination, or any other state statute or case law. The new provisions, however, do not apply to collective bargaining agreements. Continue reading ›

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