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.
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 (1st) 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.
While viability of strict ‘two-year rule’ is in question in Illinois, employers should consider alternatives to make sure non-competes are enforced
Some Illinois appellate courts, beginning with Fifield v. Premier Dealers Services, Inc., 2013 IL App. (1st) 120327, have applied a bright line rule requiring two years of continuous at-will employment to support an employee restrictive covenant absent additional consideration. The Illinois Supreme Court has not yet addressed the issue. And a majority (but not all) of the federal courts that have considered the issue have predicted that the Illinois Supreme Court will find there is no bright line rule as to the duration of at-will employment that is sufficient to support the enforcement of a non-compete agreement.
A recent Illinois Appellate Court decision serves as a good reminder that when it comes to restrictive covenants, one size does not fit all. A consistent theme in recent court decisions has been that “form” employment agreements with overly broad restrictions not anchored to the employee’s job responsibilities and related to the employer’s protectable interests will not be enforced.
Almost daily, we hear about cyber attacks on big businesses and government agencies. But the attacks are not isolated to the big entities. Your business’s most valuable trade secret information more than likely resides in an electronic database that is vulnerable. Yet probably the greatest threat to that database may come from within: your own employees.
As two federal courts recognized in February 2015, Illinois law is unsettled as to the duration of continued employment that is sufficient consideration to support a non-compete agreement. In Bankers Life And Casualty v. Miller1,a February 2015 federal court decision applying Illinois law, the court held that there is no bright line test for the length of continued employment sufficient to support a post-employment restrictive covenant specifically rejecting the argument that employment less than two years is inherently insufficient consideration under Illinois law. And in Cumulus Radio Corporation v. Olson and Alpha Media, the court recognized that the Illinois Supreme Court would likely embrace the same sort of fact specific approach to assessing the adequacy of consideration that it applies to determine whether the restrictions are reasonable.
Buyer beware as the asset protection afforded by non-disclosure and non-solicitation agreements signed by prospective purchasers may not survive the sale. This issue was addressed in a recent federal decision in Illinois offering some cautionary reminders for business buyers. In this case, Keywell LLC (“Keywell”) sought to sell its assets. Croniment Holdings, Inc. (“Croniment”), a bidder for Keywell’s assets, signed a non-disclosure agreement (the “NDA”) which prohibited Croniment from disclosing Keywell confidential information and prohibited Croniment from hiring any of Keywell’s employees with whom Croniment came into contact during negotiations. Keywell and Croniment entered into an asset purchase agreement by which Croniment would serve as the stalking horse bid for Keywell’s assets in bankruptcy.