It’s hard to see how a children’s clothing store could be a competitor for a brand that sells high-end men’s and women’s clothing. But that’s allegedly what Trunk Club told a former employee who wanted to go to work for Mac & Mia, which Trunk Club said would be in violations of the non-compete agreement she had signed with them.
A subsidiary of Nordstrom’s, Trunk Club is a personal styling service for men and women, while Mac & Mia uses personal stylists to help sell children’s clothing. Molly Dowell worked as a personal stylist at Trunk Club for about six months before leaving, citing concerns about the future of the company. Nordstrom’s recently reduced Trunk Club’s value to half of what the clothing giant paid for the personal styling company, saying it had not been performing as well as Nordstrom’s had hoped it would. That, combined with the recent departure of Trunk Club’s CEO, suggests Dowell’s concerns for the company may have been well-founded.
After leaving Trunk Club, Dowell tried to get a job with Mac & Mia, which wanted to hire Dowell, but was concerned about the non-compete agreement she had signed with Trunk Club. If they hired Dowell and Nordstrom’s decided to enforce their non-compete agreement, Mac & Mia could be facing a lawsuit from a much larger company.
Dowell didn’t think it would be a problem and asked Nordstrom’s if working for Mac & Mia would be a violation of her employment agreement. Nordstrom’s responded that Mac & Mia was a competitor of Trunk Club’s and that it would not be granting any exceptions to its non-compete agreement.
In cases like this, it can sometimes seem like the companies are competing, not for customers, but for employees. As the prevalence of non-compete agreements continues to grow, more and more companies (especially the large corporations) are using these clauses in their employment contracts to prevent their employees from leaving to find employment elsewhere. Not only does this practice reduce turnover and the costs and hassle of training new employees, it also allegedly keeps wages down when employees are prevented from leaving for higher-paying positions.
While non-compete agreements started as a way of preventing high-level employees from taking trade secrets directly to a competitor across the street, companies have been steadily increasing their use and scope of noncompete agreements to prevent all workers (from minimum-wage positions upwards) from leaving to work for any company even remotely related to the industry of the employer.
While workers and employee advocacy groups have been pointing out the harm these overly restrictive contracts place on employees (especially low-earning employees), some states have banned them altogether. California does not enforce any non-compete agreements, regardless of the state in which the contract was signed, and many experts credit this legislation with the tech boom California has been experiencing. Illinois and many other states however enforce non-compete agreements under particularized factual circumstances through court decisions that are often difficult to reconcile with each other creating great uncertainty and expense if these cases must be litigated.
Dowell, who worked for Trunk Club in Cook County, filed a lawsuit against her former employer in Cook County court for allegedly enforcing an overly restrictive non-compete agreement. The class action lawsuit (which could potentially include hundreds of class members) alleges Trunk Club’s non-compete agreement is designed to keep workers from leaving the company, suppressing wages, and unfairly restraining competition in the retail labor market.
Start-ups (specifically tech start-ups) generally don’t have much need for inexperienced or untrained students who just graduated and are now entering the workforce. Instead, they have a greater need of well-trained, knowledgeable, experienced workers to help them build their new venture into a profitable business. But they’re finding it increasingly difficult to hire those people in states that protect non-compete agreements.
Experts say that the rise of Silicon Valley as the heart of the technology world is directly related to California’s refusal to enforce any non-compete agreements whatsoever.
A non-compete agreement is part of an employment contract that prevents a worker from leaving their employer to work for a competitor. There’s usually a geographical limit of a few miles and a time limit around six months to a year, but companies are increasingly leaving those limitations behind and simply preventing their workers from ever working for any competitor.
The practice started with high-level executives who could potentially take sensitive trade secrets directly to a competitor, thereby ruining their former employer’s prospects. But more and more companies have been expanding their use of non-competes to cover all their employees – from those earning minimum wage, all the way to the top of the corporation.
Employee advocacy groups have fought hard against the use and enforcement of non-compete agreements and Big Business has fought just as hard in their favor. Large corporations trying to hold onto their employees at any cost have started looking for ways to punish their employees for leaving, rather than enticing them to stay.
A few years ago, LeapFox Learning, an education company located in Idaho, sued one of their former salespeople for allegedly violating her employee agreement when she went to work for one of their competitors – negotiating a significant salary increase as part of the deal. The lawsuit was settled outside of court, but it prompted the owners of LeapFox to pursue legislation that would make it easier for companies to prevent their workers from leaving.
The result is a new state law the Idaho legislation just passed that puts the burden on the worker, rather than the employer, to prove that the move does not have an adverse effect on their former employer’s business. Despite the provision that limits the application of the new law to high-level executives only, employee advocates are afraid it will be abused by companies to apply to workers at all levels and pay grades.
Not all businesses are in favor of the new legislation. Some recognize that non-compete agreements are a defensive measure against employee poaching, but that offensive measures could be more effective. Companies that raise their employees’ salaries (especially those employees who are most likely to get poached, such as software engineers), and address their employees’ wants and needs, will find their workers less tempted to leave for otherwise attractive positions at start-ups.
Despite the fact that Idaho has recently enjoyed a surge in tech start-ups, experts are afraid this new legislation change will prevent the formation of new start-ups in Idaho and tempt those that already exist to go to more employee-friendly states like California.
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 Highland Park and Deerfield 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 Wheaton and Burr Ridge non-compete agreement and business dispute lawyers take cases from Waukegan and Lake Forest 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 Oak Brook, Aurora and Elmhurst 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 Hinsdale and Naperville, we serve clients throughout Illinois and the Midwest.