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.
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 “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.
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.
Business Tip: Include a liquidated damages clause in your restrictive covenant agreements that clearly sets forth how damages will be calculated in the event your employee breaches the non-competition agreement.
As a President, CEO or General Counsel of your company, you have recognized the need to have your key executives and employees enter into non-competition or non¬-solicitation agreements. Those non-competition agreements are usually a cost effective way to stop your key executives and employees from competing against when they leave your company. However, in those instances where you have to go to court to enforce your non-competition agreement, the experience can be costly, in terms of attorneys' fees, your time and your company's resources.
Business Tip: Include extension clauses in your restrictive covenant agreements to ensure that the time of the restrictions will not begin to run until the employee has stopped violating the restrictions.
In order to make sure that an employer gets the full benefit of the restrictive time period in its non-competition, non-disclosure or non-solicitation agreements, employers in Illinois should make sure that such agreements contain "extension clauses." Extension clauses will extend the time period or modify the start date of the restrictive covenant in the event that an employer does not discover the former employee's breach until near the end of the restrictive time period or the employee continues to violate the restriction during litigation.