Where dance academy and employee had an employment contract that specified non-compete provision lasting “not less than five years,” the provision meant five years under Illinois law, and the reasonableness of the restriction was a fact-based question requiring more evidence to determine.
In April 2017, Pam’s Academy of Dance/Forte Arts Center sued Callie Marik, a former employee, seeking monetary damages and injunctive relief. The complaint alleged breach of contract and violation of the Illinois Trade Secrets Act. Pam’s Academy alleged that Marik breached the parties’ non-disclosure and restrictive covenant agreement by opening a dance studio within 25 miles of Pam’s Academy and soliciting students and/or teachers from an improperly obtained customer list.
Marik moved to dismiss the complaint, arguing that all of Pam’s Academy’s claims were defective because the provisions of the contract were invalid and unenforceable under Illinois law, and the complaint failed to allege a plausible basis for the allegation that Marik misappropriated a customer list. After a hearing, the trial court struck paragraph 7 of the original agreement, which banned Marik from soliciting, interfering with, diverting, or otherwise communicating with any customers or employees of the academy for purposes of providing similar services as the academy. The court found that this restriction, having no time limitation, was overly broad. The court then certified two questions for interlocutory review seeking an answer as to whether employment-based restrictive covenants with time periods of not less than five years and not less than three years were enforceable under Illinois law, and whether, in the context of employment-based restrictive covenants, whether the terms “not less than five years” and “not less than three years” meant five and three years, respectively. The Illinois Appellate Court, Third District authorized the appeal.
The appellate panel began by addressing the meaning of “not less than” in employment based restrictive covenants. The panel stated that the phrase “not less than” is routinely used in Illinois statutes and contracts. In some cases, the panel continued, the phrase establishes a minimum requirement, and in other cases used to establish a starting point followed by language that defines a termination point. The panel determined that, in the context of employment-based restrictive covenants, the phrase “not less than” is equivalent to the particular number it modifies. The panel, therefore, answered the second question in the affirmative.
The panel then turned to the first certified question. The panel cited Reliable Fire Equipment Co. v. Arredondo, stating that the Supreme Court of Illinois had established that an employment-based restrictive covenant was valid if it was for a length of time no greater than what is required for the protection of a legitimate business interest, does not impose undue hardship on the employee, and is not injurious to the public. The panel then found that it was unable to determine whether employment-based restrictive covenants lasting five or three years were reasonable in their temporal scope. The panel stated that this determination was a fact-based one which required the development of a full evidentiary record before determination. The panel, therefore, declined to answer the first certified question, answer the second question in the affirmative and remanded the case to the circuit court for further proceedings.
You can view the Appellate Court decision here.
Our Orland Park and Bolingbrook 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. Our attorneys Peter Lubin and Patrick Austermuehle have both been selected win awards by Super Lawyers. Only 5% of Illinois attorneys gain this distinction.
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 Skokie 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.
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