Impact | Understanding and Managing Business Risk

Almost all contracts contain “boilerplate” language. You may be tempted to skip over these provisions, assuming they are nothing more than unnecessary legalese. But a recent Seventh Circuit opinion, Engineered Abrasives, Inc. v. American Machine Products & Service, Inc., No. 17-1429, 2018 WL 828211 (7^th Cir. Feb. 13, 2018), serves as a reminder to all contracting parties not to disregard any provisions of a contract, no matter how boilerplate, irrelevant, or inconsequential they may seem.

In a somewhat unusual move, the state of Illinois has filed a complaint against Check Into Cash of Illinois, Inc., on behalf of the citizens of the state, seeking a declaration that the non-competition covenants that the company requires its employees to sign are unenforceable and violate the Illinois Freedom to Work Act, 820 ILCS 90/1.

An Illinois federal judge’s recent decision continues a trend toward supporting a “totality of the circumstances” approach to the enforcement of restrictive covenants.

In Stericycle, Inc. v. Simota, et al., 2017 WL 4742197, the defendants moved to dismiss plaintiff’s breach of contract claims arguing that 13 months of continued employment was inadequate consideration to enforce certain restrictive covenants. Following the majority of federal judges that have considered this issue in Illinois, Judge John J. Tharp found that if confronted with the issue, the Illinois Supreme Court would reject a bright line rule of two years of continued employment and apply a fact-specific approach in assessing consideration. Using this approach, Judge Tharp found that 13 months of continued employment was adequate consideration to support the enforcement of the restrictive covenants.

In our last post, we talked about what insider threats are and why it is so important to consider them as you construct your data security policies.  The heart of an effective strategy to minimize risks from insider threats is the concept of access controls – limiting users’ privileges to the minimum necessary – but access controls alone are not enough.

While the primary data security objective has long been to keep malicious actors out, it is important not to overlook insider threats. According to the IBM Cyber Security Intelligence Index, in 2014, more attacks originated as a result of insiders than outsiders. Moreover, the major cybersecurity enforcement action taken by the Securities and Exchange Commission (SEC) last year involved an insider.

Illinois courts have long recognized that an insolvent corporation’s creditors have standing to bring a derivative action on behalf of the corporation against its officers and directors. On June 24, 2016, in a case of first impression in Illinois, the Illinois Appellate Court, First District, in Caulfield v. The Packer Group, Inc. held that shareholders have standing to pursue a shareholder derivative suit against an insolvent corporation. This development offers a means for a corporation to recoup — for the benefit of its shareholders and creditors — assets lost as a result of management’s waste and fiduciary breaches.

The June 22 announcement of federal charges against 301 medical professionals accused of more than $900 million in fraudulent billing is a significant indication that the government is serious about increasing its pursuit of health care fraud indictments. 

Think twice before requiring at-will, low-wage workers to sign noncompetes

On June 8, the Illinois attorney general filed a lawsuit in Cook County (Illinois) Circuit Court against two Jimmy John’s entities: franchisor Jimmy John’s Franchise LLC and an LLC owning eight Jimmy John’s sandwich shops, Jimmy John’s Enterprises LLC. The lawsuit alleges the sandwich chain engaged in unfair and deceptive acts or practices unlawful under the Consumer Fraud and Deceptive Practices Act. The lawsuit seeks to stop the allegedly unlawful use of noncompetition agreements on at-will, low-wage employees and to ensure that current and former employees are informed that the noncompetition agreements they signed are unenforceable. 

A recent decision from the Northern District of Illinois favors the “totality of circumstances” approach to evaluating the sufficiency of consideration necessary to support a restrictive covenant

Another judge from the Northern District of Illinois has thrown his hat into the ring in the debate over what is required to make a non-compete agreement enforceable in Illinois.

The emerging market of 3D printing is primed for trade secrets and the disputes over who “owns” these trade secrets. Shared ideas, broken business deals, and employee mobility fuels most of these disputes. The Defend Trade Secrets Act (DTSA), a newly enacted federal trade secret act, defines the term “owner” as “the person or entity in whom or in which rightful legal or equitable title to, or license in, the trade secret is reposed.”