Several times a year, business owners tell me that restrictive covenants (such as non-competition, non-solicitation or non-disclosure provisions) are not enforceable in Illinois. That is not true. The state and federal courts in Illinois enforce restrictive covenants on a routine basis. However, to be enforced, the restrictive covenants need to have been properly drafted and kept up to date with changes in the law. Put another way, in the majority of cases where the courts do not enforce the restrictive covenants, the restrictive covenants could have been drafted in such a way that they likely would have been upheld.
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.
The following is a non-exhaustive checklist of steps that a business might take to protect information it considers to be a trade secret. While these steps will provide a good overview, it is highly recommended that any business consult with an attorney familiar with litigating trade secret matters to develop a robust plan to protect trade secrets that will work for your business.
The talent market is increasingly fluid, with many businesses following the talent development mantra “if you can’t beat 'em, hire 'em.” Poaching from a competitor is not without risk. However, there are reasonable steps that should be taken to reap the rewards of the fluidity of today’s talent pool while managing the risks. Two principal risks in “poaching” are trade secret misappropriation and interference with a contract. Some employers seek to build on the lessons learned by their competition, and to do so does not inherently violate the law. However, an employer may misappropriate trade secrets by obtaining trade secrets from its new hires.
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 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.
Though your business may not have "secret recipes" for cola drinks or fried chicken, your business undoubtedly has some process or information that it believes gives it an advantage over its competitors. This confidential information may take many forms such as a customer list that has been created through the years at considerable expense and effort; a product design that a business's competitors do not have; or a pricing formula that generates greater profits. Importantly, if a business takes certain steps to keep this information confidential, the law will help protect it from becoming public information and getting into the hands of competitors. On the other hand, if a business does not take the correct steps your competitors are free to gain access to your information and use that information to their advantage.