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.

 

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