Impact | Business Risk Management Blog

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.

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.

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.

Forming contracts by “clicking through” documents on the Internet is a fixture in the transaction of business today. However, as recently recognized in Sgouros v. TransUnion, a late March 2016 Seventh Circuit decision, despite the ubiquity of contracting online, “the law governing the formation of contracts on the Internet is still in the early stages of development.”

In Deere Employees Credit Union v. Smith, an Illinois court recently refused to enforce a restrictive covenant in an employment agreement, finding that it was overly broad. Reference to the terms of that agreement and the court’s finding offer reminders of traps to be mindful of in drafting restrictive covenants, as well as in evaluating restrictions and exposure presented by potential new hires. 

The “bright line” rule for the adequacy of non-compete agreements in Illinois first announced in Fifield v. Premier Dealer Servs., Inc., just became a bit hazier for parties evaluating the enforceability of their restrictive covenants.

Last week, a federal district court judge applying Illinois law declined to void a non-compete agreement on the basis that the at-will employment relationship that was the consideration for the restrictive covenant lasted less than two years. Adopting the reasoning of three of the four federal court judges in the Northern District of Illinois that have addressed the issue, the court, in R.J. O’Brien & Associates v. Williamson,¹ concluded that the Illinois Supreme Court would reject a two-year bright line rule for the adequacy of consideration required for a non-compete agreement to be enforceable.

A recent decision from the Illinois Appellate Court for the First District reminds employers of the need to act quickly and thoroughly in investigating potential breaches of employee restrictive covenants and in taking actions to enforce their rights under those agreements.

In Bridgeview Bank Group v. Meyer, 2016 IL App (1^st) 160042, the court affirmed the trial court’s denial of an employer’s petition for a temporary restraining order against a former employee. Bridgeview Bank had employed Thomas Meyer as a senior vice president. The bank entered into an employment agreement incorporating non-compete, non-solicitation and non-disclosure provisions at the beginning of the employment relationship.