Category: Non-Compete Dispute

Appellate Court Invalidates Restrictive Covenant

Posted by Quinton Osborne on

Yesterday, the Illinois Appellate Court affirmed a very important restrictive covenant principle. In Midwest Lending Corporation v. Horton, 2023 IL App (3d) 220132 (May 22, 2023), the Court invalided a non-compete and non-solicitation clause on the basis of inadequate consideration.

Like all contracts, restrictive covenant agreements must be supported by adequate consideration. That is, some form of quid-pro-quo. When an employee signs a non-compete, they often do not receive any benefit from signing the agreement other than continued employment. However, this continued employment is not valuable because employees are usually subject to at-will employment, and thus can be fired as soon as they sign the agreement.

Therefore, if the the employer offers the employee continued consideration to sign a non-compete, Courts have ruled that he or she must actually be employed for a period of two years for the agreement to be supported by adequate consideration. This rule was codified under the Illinois Freedom to Work Act, which requires the employee actually work for the employer for two years to be considered adequate consideration. Employers can offer other forms of consideration, such as a bonus, to support a non-compete without having to rely on continued employment to support consideration.

In Horton (a case that pre-dates the Illinois Freedom to Work Act), the employee signed a non-compete and non-solicitation agreement. The employer terminated the employee after seven months. The Court found that since the agreement lacked adequate consideration, it was not enforceable. Although the employer provided employee an offer letting saying he was receiving a bonus for the non-compete, this language was not in the agreement itself.

This case illustrates why it is incredibly important to have Non-Compete attorneys review your employment agreements. If you are seeking review of a non-compete or non-solicitation agreement, contact us today.

Non-Competes in Illinois Illegal if FTC Rule Passes

Posted by Quinton Osborne on

New regulations may change how non-completes apply to Illinois employees. On January 5, 2023, the Federal Trade Commission proposed a new rule to ban non-compete clauses. If the Rule goes into effect, it would be illegal for employers to:

  • enter into or attempt to enter into a noncompete with a worker;
  • maintain a noncompete with a worker; or
  • represent to a worker, under certain circumstances, that the worker is subject to a noncompete.

In the event this Rule goes into effect (which remains uncertain), this would immediately allow Illinois employees to work anywhere post-termination. This would be true even if the new employer is a direct competitor of the employee’s former employer. There are only a few states, such as California and North Dakota, that currently ban non-competes altogether.

As it stands, the most important non-compete law that apples to Illinois works is the Freedom to Work Act, 820 ILCS 90. The Act, which applies to all non-competes entered after January 1, 2022, prohibits non-competes for employees earning less than $75,000 per year. It also requires that employees receive adequate consideration to sign an agreement, which cannot solely be the worker’s continued employment. There are a myriad of other statues and caselaw that governs Illinois restrictive covenants.

If you are being asked to sign a non-compete, or are concerned how a non-compete will impact you going forward, reach out to our firm now.

Illinois Reaches Settlement with Jimmy John’s

Posted by Quinton Osborne on

Jimmy John’s recently required its Illinois employees to sign highly restrictive non-compete agreements. These agreements would effectively prevent the individuals from working at most food-related companies in the nation. The company’s actions were so egregious Illinois passed a law prohibiting employers from using non-compete agreements for employees earning $13 or less per hour.

Illinois’ Attorney General, Lisa Madigan, also filed suit against the Corporation for unfair labor practices. In essence, the lawsuit claims the company forced its employees to sign the non-compete agreements, knowing they were unenforceable, in an attempt to chill any effort by employees to consider leaving for another employer.

This week, the Illinois Attorney General and Jimmy John’s reached a settlement in the case. The company settled the case with Illinois for $100,000, and further agreed to:

  • notify all current and former employees the agreements are non-enforceable;
  • rescind any non-competes used based on the unenforceable agreement;
  • remove all non-compete from the new-hire process; and
  • comply with Illinois law regarding non-competes in the future.

Unfortunately, instead of using non-compete agreements to protect a legitimate business interest, companies are increasingly using the documents to simply dissuade employees from working someone else. Courts are clear that simply using a non-compete to discourage an employee from quitting or working for a competitor are not in-and-of-themselves legitimate business interests for purposes of non-compete agreements. If you have signed a covenant not to compete or other business agreement, it is highly advisable to speak with an attorney to learn your legal rights.

 

Illinois Enacts New Non-Compete Law

Posted by Quinton Osborne on

Businesses can have very legitimate reasons for implementing covenants not to compete (non-competes) with their employees. In Illinois, there are primarily two ways companies can justify subjecting employees to non-competes: (1) protecting confidential trade information; and (2) protecting customer relationships. In evaluating whether a non-compete is valid, a court will determine whether the provision: (1) is no greater than is required for the protection of a legitimate business interest of the employer-promisee; (2) does not impose undue hardship on the employee-promisor; and (3) is not injurious to the public. See Reliable Fire Equip. Co. v. Arredondo, 965 N.E.2d 393, 396 (Ill. 2011).

Jimmy John’s Non-Compete Agreements

There are certainly “close cases” when it comes to the enforceability of non-competes. Whether a restriction should last for one or two years, restrict competition within 50 or 100 miles, or limit the applicability of the non-compete to a specific type of business activity are all likely relevant in whether a non-compete will have any force. However, the non-compete Jimmy John’s required its employees to sign was certainly not a close case. The sandwich company required all employees to sign a non-compete (the entire agreement can be found here), prohibiting the employee from working for any business which derives more than 10% of its revenue from sandwiches, and located within 3 miles of any Jimmy John’s restaurant for a period of two years. The agreement does not even attempt to justify why a non-compete is necessary, as most do.

Sandwich

Thus, if enforceable, the vastly overbroad provision would likely prevent a former Jimmy John’s employee from working at other sandwich-making restaurants such as Subway and Mr. Goodcents, but it would also prohibit the employee from working at McDonald’s, Arby’s, Burger King, and many (if not most) other fast-food restaurants.  Not only that, but as many fast food restaurants are within three miles of a Jimmy John’s, it would prevent the employee from working at any of the restaurants nation-wide!

It is mind boggling why someone thought this non-compete was necessary. Jimmy John’s employees do not have any secret information when making your sub. In fact, a customer can watch the employee make the entire sandwich. Jimmy John’s employees also do not have protectable customer relationships.  Even if the company had protectable interests, a court would likely find the non-compete was not limited to those interests. Instead of restricting the non-compete to sub sandwich restaurants near the particular Jimmy John’s, it restricted employment to basically all restaurants in the country.

Fortunately, the non-competes caught the attention of the Attorney Generals in Illinois and New York, and both states filed suit against the company for unfair conduct in violation of the States’ Consumer Fraud and Deceptive Business Practices Acts. The company soon caved, and agreed to not enforce any previous non-competes, and not require new employees to sign the provisions.

Illinois Freedom to Work Act

To prevent future oppressive conduct by companies, Illinois recently enacted the Illinois Freedom to Work Act. The Act prohibits employers from entering into non-competes with employees who earn $13 or less per hour. If the employer chooses to enter into the non-compete with such “low-wage employee,” the Act deems the covenant illegal and void. The Act becomes effective on January 1, 2017, and only applies to agreements entered after that date.

The moral of the story is that if you are contemplating signing a non-compete, or are not sure how an already-signed non-compete will affect you, consult an attorney immediately. Do not assume that all non-competes are enforceable in DuPage County or elsewhere in Illinois, because as Jimmy John’s showed, they often are not.