To compete or not to compete? That is the question.

To compete or not to compete? That is the question.

            In the recent Illinois Federal Court case of Montel v. Miessen , Chief Judge Ruben Castillo of the U.S. District Court for the Northern District of Illinois validated a non-compete clause in which an employee worked for 15 months, resigned, and then competed.

            A non-compete clause or agreement, as defined from Nolo.com, is used to help prevent former employees from becoming a threat to your business. This clause is typically used to protect “trade secrets” such as a business’s processes, client lists, secret recipes, or techniques. Issues to keep in mind when issuing a non-compete agreement from David Henderson, a partner in the Litigation Department of Nutter McClennen & Fish, LLP and Christopher Lindstrom, an associate in the Litigation Department of Nutter McClennen & Fish, LLP, are as follows: (1) it must protect a legitimate business interest, (2) must be reasonable in scope, (3) An otherwise enforceable non-competition agreement may become unenforceable because of a material change in the employment relationship, (4) a non-competition agreement is enforceable only when the employee receives consideration for it, (5) an otherwise reasonable non-competition agreement may become unenforceable as a result of an employer’s misconduct, (6) public policy may render a non-competition agreement unenforceable, (7) information must actually be confidential to be a legitimate business interest worthy of protection through a non-competition agreement, and (8) an employer’s actions with one employee may impact the enforceability of non-competition agreements with other employees.

The issue the recent case focused on is issue number 4 of adequate consideration. According to Henderson and Lindstrom, “It may be advisable to have the employee sign the NCA at the inception of the employment relationship, when there is no question that undertaking this particular contractual commitment is a condition of obtaining the job. But employers often decide that an NCA is necessary (or that it should be modified) after the employee already has been working for some time. Some courts deem the implicit offer of continued employment to be sufficient consideration for this type of post-hiring NCA. But other courts ask whether something more in the form of consideration (e.g., a promotion, an incentive payment, a salary increase, etc.) also is required.”

Fifield vs Premier Dealer Services, Inc., a preceding case, the Illinois Appellate Court held that “continued employment in an “at will” state is an illusory benefit (the employee could be terminated at any time).  Thus, the court required a “substantial period” of employment.  Although rejecting a “bright-line” test or “numerical formula,” the court suggested that at least two years of employment satisfies the “substantial period” required for adequate consideration.”

It seems as if Illinois will be sticking to this “two-year” minimum requirement of employment as adequate consideration for a non-compete agreement, but will that standard catch on in other jurisdictions? It will be interesting to see.

 Special thank you to Katrina Nicha for writing another great post!

Articles used for reference:

  • http://www.tradesecretslaw.com/2014/02/articles/trade-secrets/illinois-federal-court-finds-only-15-months-employment-sufficient-consideration-for-non-compete-agreement/

           

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