When entering into the employment domain, covenants are imposed on employees restricting what they can and cannot do once they leave the job. Violations and restrictions are what employers often look for when they wish to seek enforceability of a contract that was entered into when employees decide to move elsewhere. Typically, such agreements prohibit the competing with an ex-employee for a certain period after the employee has left the business, or prevents the ex-employee from soliciting or dealing with customers of the business by using knowledge of those customers gained. This issue was again a reminder in the case of Dumrauf, where there was a covenant to be found and the Courts later deemed it to be unenforceable because it was too restrictive.
Generally speaking, a “one size fits all policy” when drafting restrictive covenants, will risk them being unenforceable. This is especially if the demand is unreasonable or not necessary to protect legitimate business interests. In this specific case, the District Court examined the whether a covenant that an employer-employee entered into was able to prohibit any work for his new employer within 50 miles of an office pursuant to a covenant not to compete Dumrauf signed while working for his previous employer. On its face, the clause also excluded him from taking any position with another company that engages in the same business, without regard to whether that position is similar to a position Dumrauf held. The termination was at will, as he resigned. Majority of the work that he was now to be involved in meant dealings with a new client base, mainly in other states. Accordingly, he argued that the covenant was “too restrictive” and that the “covenant bars him from taking positions with those companies extend beyond roles that were similar to those he previously held to any position whatsoever at other companies in the industry.” The argument extended so far as to say that he couldn’t even work as a janitor for another company. For such reasons, the grammar and application of the clauses in the employment agreement were carefully scrutinized. Deliberations then led to considerations of whether this would even affect the business interests. The question of the justification of broader restrictions vs. legitimate business interests was the main crux of in which way the court was likely to lean. This is exactly why scope, grammar, and context all matter in the phrasing of such contracts. Courts have the power over it to modify the terms of the agreement but only where the intent of parties is made known. Otherwise, such terms have the potential to become unenforceable, especially in unfair circumstances. That is why the Court did not consider this case as being eligible for modification. You can view the opinion here.
It remains to be seen whether or not more Illinois state courts will follow the application of this decision. The lessons we can learn from this is to always consider the grounds on which contract agreements are being drawn. Records of discussions to make intent clear, to ensure fairness, clarity, and definition of business interests at stake are important. The risks of losing to unenforceability are increased if the above factors are not shown and where too many restrictions with are overly broad can apply. Continue reading