Courts and now legislators are competing against the trend of non-compete clauses in employment agreements.
For it is Democratic leaders that have joined the bandwagon in terms of wanting to prohibit the use of covenants not to compete nationwide. Per Senator Warren’s press release, implementation of the clauses will reduce bargaining power for employees, stifle competition and innovation. All of that combined hurts Americans and their opportunities. This will eventually, in turn, give greater power to the Department of Labor.
If legislation was in place, there will most likely be a ban through fines on employers who either fail to notify employees that non-compete agreements are illegal or who require employees to sign covenants not to compete. Such a bill would specifically enact a law to protect its trade secrets. As it stands, no legislation is in place that would not allow that to happen.
Non compete clauses are in often in place for businesses to protect their investments in business and to prevent employees turn around and share information that may be valuable in another employment setting. That is why the wording of non compete agreements is important. However, more and more businesses are now laying off employees. For that reason, non compete agreements have been found to be unenforceable on those grounds in the following states: Arkansas, Iowa, Kentucky, Maine, Mississippi, New York, Pennsylvania, South Dakota, or Tennessee, or in the District of Columbia. This is because courts in these 10 jurisdictions have refused to enforce restrictive covenants against employees whose employment is terminated for reasons other than their performance or conduct, i.e., as the result of a layoff, reduction in force, or elimination of position unrelated to the employee’s performance or conduct. Thus, whether a termination was “for cause” or not “for cause” can render the restrictive covenant ineffective.
Courts in New York did not enforce non-compete agreements against employees that were involuntarily terminated as part of a plant closure (SIFCO Indus., Inc. v. Advanced Plating Techs., Inc. 867 F.Supp. 155 (S.D.N.Y. 1994). The basis for that was the grounds of fundamental fairness in enforcing a non-compete against an individual who did nothing to bring about their termination. Termination of such an agreement can also be considered unilateral. A mutuality is required if an agreement is to be enforced.
So the trend of the way in which an employee is terminated does matter, especially if you care about the non-compete requirement. This is since it seems that fairness and bargaining power are forces coming in to play as to subjectivity. To remain safe, it is most likely best that if you do not want an employee to compete with your business; this is a factor that will weigh in as it may be unenforceable in contract law to hold that against them.
Non-compete agreements can have the effect of chilling certain behavior by current and former employees, but when it is possible to take steps to ensure enforceability, you should give those steps careful consideration. Both the Congress and the courts are leaning that way and it is only a matter of time that employers will need to take more careful measures in today’s market where layoffs are becoming more common and covenants may not be so restrictive.
Our Chicago non-compete agreement attorneys have defended high-level executives in a 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.
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 Evanston and Wilmette 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.
Lubin Austermuehle a Chicago business litigation law firm represents both plaintiffs and defendants in such cases, and can also help stop litigation before it starts by reviewing contracts to look for covenants and clauses that could create problems later. Our firm has also handled many shareholders and LLC disputes between owners of closely held corporations, and LLCs.
Based in Oakbrook Terrace and downtown Chicago, our Glen Ellyn and Hinsdale non-compete agreement and business dispute lawyers take cases from Highland Park and Northbrook and many other cities throughout Illinois, as well as in Indiana, Wisconsin and the entire United States. To learn more or set up a free consultation, please contact one of our Chicago business dispute lawyers through the Internet or call toll-free at 630-333-0333 today.
Lubin Austermuehle’s Aurora and Naperville non-compete agreement litigation attorneys have more than three decades of experience helping clients unravel the complexities of Illinois and out-of-state non-compete and trade secret theft laws. Our Chicago business dispute attorneys also represent individuals, family businesses and enterprises of all sizes in a variety of legal disputes, including disputes among partners, shareholders, and LLC members 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 Schaumburg and Lake Forest, we serve clients throughout Illinois and the Midwest.