Illinois law and enforceability of postemployment restrictive covenants

Every business in this, the Information Age, is highly dependent on confidential and proprietary information.  As many design and creative professionals know, a design business is often based on intimate, personal relationships with clients. As a result,  relationships are built upon a high degree of trust and the professional reputation of the designer.  In addition, the designer brings a host of regular vendors and proprietary skills, knowledge, experience, including private and confidential information about clients, used for operating the Business.  It is not surprising that businesses will seek to prevent disclosure of business, technical and financial information (including information relating to clients, employees and vendors, as well information an employee learns during her employment.

Do I need a Non-solicitation agreement for my Design Business?

Increasingly, I am being asked by clients to prevent departing employees from using proprietary and confidential information and form poaching clients and employees.  These non-disclosure or non-solicitation provisions seek to prevent an employee from encouraging or soliciting any client, employee, vendor, or contractor to leave. Unfortunately,

Restrictive Covenants Are Hard to Enforce!

Post-employment restrictive covenants are carefully scrutinized by Illinois courts because they operate as partial restrictions on trade. Fifieldv. Premier Dealer Services, Inc., 2013 IL App (1st) 993 N.E.2d 938 (citing Cambridge Engineering, Inc. v. Mercury Partners90 BI, Inc., 378 Ill.App.3d 437, 447 (2007) ). In order for a restrictive covenant to be valid and enforceable, the terms of the covenant must be reasonable. It is established in Illinois that a restrictive covenant is reasonable only if the covenant (1) is no greater than is required for the protection of a legitimate business interest of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public. Reliable Fire Equipment Co. v. Arredondo, 965 N.E.2d 393 (2011). The courts consider the unique factors and circumstances of the case when determining the reasonableness of a restrictive covenant. Millard Maintenance Service Co. v. Bernero, 566 N.E.2d 379 (1990). However, before even considering whether a restrictive covenant is reasonable, the court must make two determinations: (1) whether the restrictive covenant is ancillary to a valid contract; and (2) whether the restrictive covenant is supported by adequate consideration. Fifield, 993 N.E.2d 938. Absent adequate consideration, a covenant, though otherwise reasonable, is not enforceable. Id. ¶ 14 (citing Brown & Brown, Inc. v. Mudron, 887 N.E.2d 437 (2008) ); see also Millard, 566 N.E.2d 379.

For most businesses, enforceability of such covenants turns on the concept of “consideration.” The current Illinois authority on “consideration” is Fifieldv. Premier Dealer Services, Inc., 2013 IL App (1st) 120327. In Fifield, the Illinois appellate court noted that Illinois courts have repeatedly held that there must be at least two years or more of continued employment to constitute “adequate consideration” in support of a restrictive covenant.  The court also clarified the process by adding that “Fifield [did not overrule or modify] Brown, which engaged in a fact-specific approach in determining consideration.

As a general rule, courts do not inquire into the adequacy of consideration. However, postemployment restrictive covenants are excepted from this general rule because “a promise of continued employment may be an illusory benefit where the employment is at-will.”  Most design businesses have at-will employees.

Fifield is equally important for both what it says and for what it does not. Clearly employment alone – any less than two years duration – is  NOT adequate consideration. However, the Fifieldcourt also stated that there could be other or additional factors such as an “added bonus in exchange for this restrictive covenant, more sick days, some incentives, [or] some kind of newfangled compensation,” that could be considered additional compensation that could support enforcement of the covenant.

Despite the recognition that the bar is set high for the amount of consideration necessary to enforce restrictive covenants, it makes sense to include them in your agreements with those who work for you.

In addition to the non-solicitation language, one should create a strong and broad definition of protectable proprietary and confidential information.  While it may not always be possible to stop a former employee from directly competing against you, it is possible to prevent said employee from using your own proprietary and confidential information against you.

 

Recent Court Decisions Provide Some Clarity in Ever-changing Techlaw Landscape

As every CIO knows, today all business is digital business.  From the corner mom and pop bodega using Square to process credit cards up to Cisco Systems global network of devices supporting Zetabytes of data over an increasing number of devices.

What began as largely static website e-commerce at the turn of the millennium is now every day operations across multiple devices and the many different brands of platform and content delivery network.  In case you missed it, two recent cases will have a wide impact regardless of industry period

Law Enforcement Access To Cell Phone Location Data Requires Warrant

In the case of Carpenter v. United States, the Supreme Court ruled that law enforcement must obtain a warrant to have access to location and other data contained on a suspect’s cell phone.  In case you’re not familiar with the case, the facts in the Carpenter case are worth mentioning. In 2011, the government, conducting a criminal investigation in Detroit, obtained months’ worth of time-stamped records known as cell-site location information (CSLI) for suspects.  Wireless carriers produced CSLI for petitioner Timothy Carpenter’s phone, and the Government was able to obtain 12,898 location points cataloging Carpenter’s movements over 127 days—an average of 101 data points per day.  Carpenter moved to suppress the data, arguing that the Government’s seizure of the records without obtaining a warrant supported by probable cause violated the Fourth Amendment.  The District Court denied the motion, and prosecutors used the records at trial.  Carpenter was convicted, based in part on the cell-site records, and he appealed. holding that the government’s acquisition of historic cell-site location information (HCSLI) – at least to the extent it includes 7 days or more of cell-site records – was a search and thereby required a warrant.

In reversing the conviction, a majority of the Court has recognized that individuals have a reasonable expectation of privacy in the whole of their physical movements and a warrant is required only in the rare case where the suspect has a legitimate privacy interest in records held by a third party.  The Court downplayed the significance of its ruling, calling its decision “a narrow one” that “does not express views on “real-time CSLI” or question the application to … a range of other information-gathering tools, such as security cameras.”

What this means for business.  While pundits are wisely praising the decision as a victory for privacy, I for one, do not believe it applies that broadly. Even so, there is a tangible benefit for corporate counsel at technology companies, especially those that maintain location information about their customers. Lawyers and compliance pros will feel some relief knowing that they do not have to scramble, prevaricate or litigate with law enforcement when a company receives a subpoena or other demand for location data without a warrant attached.

For additional views on this decision, please see an article from the International Association of Privacy Professionals here, and another from the Electronic Frontier Foundation here.

States Can Now Require That Internet Retailers Collect Sales Tax

The other notable decision to come down from the Supreme Court involves the long-simmering issue of state taxation on internet sales.

The decision, in South Dakota v. Wayfair Inc., was a victory for brick-and-mortar businesses that have long complained they are put at a disadvantage by having to charge sales taxes while many online competitors do not. And it was also a victory for states that have said that they are missing out on tens of billions of dollars in annual revenue.

The South Dakota Legislature enacted a law requiring out-of-state sellers to collect and remit sales tax “as if the seller had a physical presence in the State” to address the erosion of its sales tax base causing a corresponding loss of critical funding for state and local services (“Act”).  The Act covers only sellers that, on an annual basis, deliver more than $100,000 of goods or services into the State or engage in 200 or more separate transactions for the delivery of goods or services into the State.  Top online retailers with no employees or real estate in South Dakota who met the Act’s minimum sales or transactions requirement, but do not collect the State’s sales tax opposed the Act. South Dakota filed suit in state court, seeking a declaration that the Act’s requirements are valid and applicable to respondents and an injunction requiring respondents to register for licenses to collect and remit the sales tax. At trial and on appeal, courts held that the Act is unconstitutional.

The ruling effectively overturned a system that it created.  In 1992, the Supreme Court held that the Constitution bars states from requiring businesses to collect sales tax unless they have a substantial connection to the state. That case was Quill Corporation v. North Dakota.  The Quill decision helped pave the way for the growth of online retail by letting companies sell nationwide without navigating the complex patchwork of state and local tax codes.

South Dakota’s attorney general, called the ruling “a big win for South Dakota and Main Streets across America.”  The case should benefit both rural businesses where local businesses have been hit hard by competition from online retailers and municipal coffers as well, because in some states local sales taxes are collected at the state level.  Owners of brick-and-mortar stores like the decision as a means of leveling the playing field because they feel they often missed out on sales of big-ticket items since sales tax could have had an amplified effect on the price.  For consumers, this could mean paying more for products bought online.  Although most have a “use tax” that works like a state sales tax for online purchases, few if any consumers actually pay it.

Since the beginning of my practice in 1999, I suggested businesses take a state-by-state approach when it comes to issues like sales tax, since it can vary widely by jurisdiction.  No business is entirely virtual. All businesses will need to examine their ecommerce strategy to see whether and to what extent this case affects the business model.

David Adler continues focus on Cyber Security Conferences

Soem prior conferences:

Data at Risk: Regulatory and Privacy Concerns in a Data Breach. – Enfuse Conference 2018, Las Vegas, NV, May 23, 2018.

Trends in Cyber-Law 2017– ISACA CSX North America 2017, Washington, DC October 2-4, 2017

The Human Side of IT Acquisitions– Assoc. of Technology Acquisition Professionals CAUCUS IT Procurement Summit, New Orleans, LA, November 7-8, 2017

My topic, Assessing and Responding to Cyber Legal Risk,was chosen for presentation at the 2018 New York State Cyber Security Conference. 

#nyscyber 

Technology, Innovation and the Law

In today’s world, business is no longer about simply having an online presence. Digital business is transactional and social across platforms and networks across thew globe. The previous model of one-to-one transactional business relationships has evolved to one that is reciprocal, collaborative and highly interactive.

This new level of engagement is not without risks. As businesses expand into new online areas for marketing and commerce, businesses should be aware of a myriad of laws and risk areas implicated when one conducts business online. Business lawyers must be familiar with Technology Law.

There are a wide variety of services around the most common types of content and businesses need legal disclaimers, protection of intellectual property rights and other ways to limit liability.

Generally, the key areas and issues are:

Trade & Commerce Issues

  • Advertising & Promotions Laws (these vary by state)
  • Affiliate Marketing Agreements/Relationships
  • Federal Regulatory Guidelines
  • Industry Regulations & Guidelines
  • CAN-SPAM Act
  • Online Contracts/Terms of Use (Click-Wrap/Browse-Wrap Agreements)
  • Disclaimers
  • Limits of Liability
  • Sales & Taxation/Clarifying Nexus Confusion
  • Choice of Law/Forum
  • Insurance Law
  • Website Representations and Warranties

Intellectual Property Issues

  • Copyright & Digital Millennium Copyright Act
  • Defamation/Free Speech
  • Trademark Law
  • Unfair Internet Business Practices Such as Domain Name Hijacking & Cybersquatting
  • Anti-cybersquatting Consumer Protection Act
  • Linking/Scraping/Crawling
  • Patent Law
  • Licensing
  • Trade Secrets

Privacy & Security Issues

  • Credit Cards / Transaction Processing
  • E-Payment and Credit Card Security/Privacy
  • Children’s Online Privacy Protection Act
  • Data Breach Notification Laws
  • Data Privacy Laws

Human Resources & Employment Issues

  • BYOD & Computer Usage Guidelines for Employees
  • Employment and Labor Laws
  • Social Media Guidelines for Employees

We look forward to the opportunity to discuss any questions you may have regarding the range of business, technology and intellectual property services we offer. Our law office is based in Chicago, Illinois. Please feel free to call us at (866) 734-2568 should you have any questions.

Tips for a Successful & Legal Influencer Marketing Campaign

On September 25, 2017, I gave a presentation at Influencer Marketing Days in NY on how to avoid unnecessary legal risks when using Influencer Marketing.

Media consumption is moving from traditional outlets to other platforms. Explosive growth for social media and declining TV viewership means that advertising dollars are migrating with the eyeballs.

Due to popularity and reach of platforms like Instagram, Snapchat, YouTube and even a resurgent Twitter, brands are partnering with “influencers” to help the grow through views, impressions and “likes.” Online advertising is an active legal enforcement area and influencer marketing presents potential legal issues.

Since most lawsuits focus on consumer awareness (or lack thereof), legal compliance requires appropriate and adequate disclosures. The presentation focused on when disclosures are required and what constitutes adequate disclosure.

FTC

David Adler takes center stage in Washington D.C. at ISACA #CSXNA 2017

Trends in Cyber Law
ISACA CSXNA 2017 CYBER LAW

Adler’s topic was Trends in Cyber-Law 2017.

Cyber-Law “governs the digital dissemination of both (digitalized) information and software and legal aspects of information technology more broadly, including information security and electronic commerce. Cyber law  is a term that encapsulates the legal issues related to use of the Internet. It is less a distinct field of law than intellectual property or contract law, as it is a domain covering many areas of law and regulation, such as internet access and usage, privacy, freedom of expression, and jurisdiction.”

Despite the variety of subjects, most legal trends for 2017 are in 5 key areas: Data Sovereignty, Cyber Conflict, Civil Liberties, IoT and Cloud.

The full presentation slide deck is available here.

CSX2017 Trends in Cyberlaw 2017 Adler (Read-Only)

Intellectual Property rights (copyright, patent, trademark, trade secrets) and information technology systems each play a crucial role in business competitiveness. In order to realize the full potential of a company’s intangible business assets, it is necessary to be able to identify, locate and safeguard their disclosure and use. Cyber Security plays a crucial role in managing these internal and external business and legal risks. This “Hot Topics” discussion is a snapshot of developments in law, policy, regulation and court cases focusing on privacy and civil liberties, identity, cyber-conflict, IoT, standards, corporate structuring and the international technology marketplace.

This session covered:

  • Understanding how developments in smart home devices are creating new cyber security challenges
  • Learning how changes in regulatory agency policies and personnel are creating new privacy risks and opportunities
  • Identifying new legal cases affecting business operations
  • Recognizing new business and legal risks in relationships with customers and vendors and how to implement changes to mitigate such risks

For more information contact us here:

www.adler-law.com (866) 734-2568

Advanced Issues in Contracts for Interior Designers

Every business transaction is governed by contract law, even if the parties don’t realize it. Despite the overwhelming role it plays in our lives, contract law can be incredibly difficult to understand.

Successful Interior Designers know how to manage the legal needs of the business while bringing a creative vision to life for a client or project. Confusion about rights, obligations, and remedies when things go wrong can strain and even ruin an otherwise promising professional relationship.

This program teaches new designers and entrepreneurs answers to some basic questions, such as:

  • What to do when clients / vendors / contractors don’t pay?
  • How can one use Indemnifications, Disclaimers and Limitations of Liability clauses to balance business risk when the parties may not be economically balanced?
  • What types of remedies are available and what are the limitations in scope for certain types of monetary and “equitable” remedies?

Take a deeper dive into advanced issues for interior design professionals. Learn how contracts can protect your design business and how to safeguard your rights.

Qualifies for .1 CEU credit.

This program was originally delivered on Aug. 17, 2017 at the Design Center at theMART 14th Floor Conference Center, 222 Merchandise Mart Plaza, Chicago, IL 60654