Non-compete agreements generally exist to protect a company’s legitimate business interests in the event an employee decides to leave to work for a competitor, but what if the employee is laid off through no fault of their own? Should a non-compete agreement still keep them from obtaining employment if their former position no longer exists? This is the question Dr. Crocker asked after he was laid off from his position at Greater Colorado Anesthesia (GCA) as the result of a merger.
When Crocker got another job with a similar company in the same geographic area, GCA sued him for breach of contract. The company pointed to the non-compete clause in Crocker’s employment contract, but Crocker responded by suing his former employer, saying the non-compete agreement was overly burdensome by preventing him from obtaining valid employment as a doctor.
The Colorado Court of Appeals agreed with Crocker and issued a new interpretation that makes any non-compete clause included in a contract void upon termination of the contract. On the other hand, the new ruling holds that other parts of the contract will not be considered void upon termination of the contract, as long as they’re enforceable by law. As an example, the court pointed to clauses in a contract that require the party injured by the termination of the contract to be paid for damages related to that injury (such as severance pay).
The Colorado Court of Appeals noted that, in most cases, non-compete agreements are still enforceable after an employment contract has been terminated, even in the event of a merger. Usually, whichever company comes out on top in the merger is able to enforce all aspects of the employment contract, including the non-compete clause, but the court noted some unique circumstances in Crocker’s case that, according the court, meant the usual rules regarding non-compete agreements couldn’t be applied.
While he was employed by GCA, Crocker was also a shareholder of the company, but that shareholder status was determined by his status as an employee and vice versa. He could not hold shares of the company without being employed by the company and he could not be employed by the company without also owning shares of the company.
Since no court or legislature had previously weighed in on such a non-compete clause case in which the former employee was also a former shareholder (and moreover, the condition was dependent upon his status as an employee and vice versa), the court reverted to other rulings regarding non-compete clauses more generally.
In courts all across the country, most panels have ruled that non-compete agreements can be enforced after termination of the employment contract, but only if the non-compete clause does not impose too heavy a burden on the employee (i.e. make it too difficult for them to get another job) and often it is not enforceable depending on the language used if as here the employee is laid off..
The court found that the non-compete agreement contained in Crocker’s employment contract with GCA did impose too heavy a burden on Crocker because it made it too difficult for him to find employment where he could practice medicine after he had been laid off from GCA. As a result, the court ruled that the non-compete clause was unreasonable and therefore unenforceable, which is why the court deemed that clause to be void, while maintaining other provisions of the employment contract.
Our Naperville and Downers Grove non-compete agreement attorneys have defended high-level executives in a covenant not to compete and trade secret lawsuits. A case in which our firm defended a former Motorola executive was covered in Crain’s Chicago Business. You can view that article by clicking here.
Lubin Austermuehle a firm of Chicago business dispute lawyers handles litigation over non-compete clauses for individuals and businesses of all sizes, including small or closely held businesses for whom competition from an ex-employee can be a serious threat. Our Chicago business lawyers with offices near Lagrange and Burr Ridge have substantial experience in restrictive covenant and breach of contract cases, and we are proud of our record of strong results. We have successfully represented a number of doctors in non-compete, partnership, and other business disputes. We understand the complexities of physician partnership and non-compete agreements.
Lubin Austermuehle a Chicago business litigation law firm represents both plaintiffs and defendants in such cases, and can also help stop litigation before it starts by reviewing contracts to look for covenants and clauses that could create problems later. Our firm has also handled many shareholders and LLC disputes between owners of closely held corporations, and LLCs.
Based in Oakbrook Terrace and downtown Chicago, our Arlington Hts. and Des Plaines non-compete agreement and business dispute lawyers take cases from Evanston to Park Ridge and many other cities throughout Illinois, as well as in Indiana, Wisconsin and the entire United States. To learn more or set up a free consultation, please contact one of our Chicago business dispute lawyers through the Internet or call toll-free at 630-333-0333 today.
Lubin Austermuehle’s Oak Brook and Mt. Prospect non-compete agreement litigation attorneys have more than three decades of experience helping clients unravel the complexities of Illinois and out-of-state non-compete and trade secret theft laws. Our Chicago business dispute attorneys also represent individuals, family businesses and enterprises of all sizes in a variety of legal disputes, including disputes among partners, shareholders, and LLC members as well as lawsuits between businesses and consumer rights, auto fraud, and wage claim individual and class action cases. In every case, our goal is to resolve disputes as quickly and successfully as possible, helping business clients protect their investments and get back to business as usual. From offices in Oak Brook, near Gurnee and Waukegan, we serve clients throughout Illinois and the Midwest.