Chicago Business Litigation Lawyer Blog
It is well settled that “Illinois courts abhor restraints on trade” and therefore “postemployment restrictive covenants are carefully scrutinized . . . because they operate as partial restrictions on trade.” McInnis v. OAG Motorcycle Ventures, Inc., 2015 IL App (1st) 142644 at ¶26; see also Medix Staffing Sols., Inc. v. Dumrauf, 17 C 6648, 2018 WL 1859039, at *2 (N.D. Ill. Apr. 17, 2018) (granting motion to dismiss and noting that “[u]nder Illinois law, covenants not to compete are disfavored and held to a high standard”); Grand Vehicle Works Holdings Corp. v. Frey, 03 C 7948, 2005 WL 1139312, at *6 (N.D. Ill. May 11, 2005) (“Illinois courts disfavor and closely scrutinize restrictive covenants because they are repugnant to the public policy encouraging an open and competitive marketplace”); Cambridge Eng’g., Inc. v. Mercury Partners 90 BI, Inc., 378 Ill.App.3d 437, 447 (1st Dist 2007) (refusing to enforce restrictive covenant).
For a restrictive covenant to be enforceable, the terms must be “reasonable and necessary to protect a legitimate business interest of the employer.” Medix Staffing Sols., Inc. 2018 WL 1859039, at *2. Thus, a restrictive covenant is reasonable only if it: “(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.” Reliable Fire Equip. Co. v. Arredondo, 2011 IL 111871, ¶ 17. “The employer seeking to enforce a restrictive covenant bears the burden of demonstrating that the full extent of the restraint is necessary for protecting its interests.” Cambridge Eng’g., Inc., 378 Ill.App.3d at 447. The employer must also establish a protectable interest in its customers by showing for example that it has near-permanent relationships with certain customers based upon the employer’s relationship with the customers. Giffney Perret, Inc, 2009 WL 792484, at *11. Here, the non-solicitation agreement fails to meet that standard and ITsavvy will not be able to meet its steep burden of proof.
A restrictive covenant that precludes an employee from solicting or selling to any of his former employer’s customers anywhere, with no geographic scope and no limitation based upon whether the customer did business with an employee or was a long-term customer of the employee before he or she began working for the employer is generally unenforceable in Illinois, unless the employee had contact with and/or worked with all or nearly all the employer’s customers.
An employer cannot demonstrate any valid basis for preventing an employee from soliciting customers with whom he or she never worked. See AssuredPartners, Inc. v. Schmitt, 2015 IL App (1st) 141863, ¶ 42 (non-solicitation provision invalid where it went beyond protecting those customer relationships that employee developed while working for an employer); Cambridge Eng’g., Inc., 378 Ill.App.3d at 455 (same); Lawrence & Allen v. Cambridge Human Resources Group, 292 Ill.App.3d 131, 138 (2d Dist. 1997) (“[c]ourts are hesitant to enforce prohibitions against employees servicing not only customers with whom they had direct contact, but also customers they never solicited or had contact with while employed by plaintiff”); Trailer Leasing Co. v. Associates Commercial Corp., 96 C 2305, 1996 WL 392135, at *3 (N.D. Ill. July 10, 1996)) (holding customer non-solicitation provision unenforceable where it includes customers with whom employee had no contact).
Next, if the non-solicitation agreement lacks a geographic scope it is also generally found to be too broad unless the employee worked all over the country with nearly all or all the employer’s nationwide customers. This issue is on all fours with Lawrence & Allen. In that case, the court held that a customer non-solicitation provision was overbroadly drafted and unenforceable because it had no geographic limitations and therefore included a territorial area greater than the one in which the employee worked on behalf of the employer. Lawrence & Allen, 292 Ill.App.3d at 138-140.
The court held:
A covenant not to solicit does not require a geographic limitation, but it must be reasonably related to the employer’s interest in protecting customer relations that its employees developed while working for the employer … [i]n fact, the lack of a geographical scope may be determinative where the territorial restrictions are greater than the area [the employee] served on behalf of the former employer. The employee should only be excluded from the territory where he was able to establish a certain relationship with the former employer’s customers.
Id.; See also Cambridge Eng’g., Inc., 378 Ill.App.3d at 448-449 (geographic scope overbroad where it went beyond the territorial zone in which relationships with the employer’s customers could have been established).
Illinois courts generally will not save this type of overbroad restrictive covenant by blue-penciling it. Illinois courts have displayed a reluctance to “blue pencil” or modify overly broad and unenforceable non-solicitation or other similar restrictive covenant provisions. Admiin Inc. v. Kohan, 23-CV-04430, 2023 WL 4625897, at *9 (N.D. Ill. July 19, 2023); Oce N. Am., Inc. v. Brazeau, 09 C 2381, 2009 WL 6056775, at *13 (N.D. Ill. Sept. 4, 2009), report and recommendation adopted, 09C2381, 2010 WL 5033310 (N.D. Ill. Mar. 18, 2010) (“If the court essentially must draft a new agreement to render the covenant reasonable, that court should probably decline to do so to encourage employers to more narrowly draft their covenants.”) Giffney Perret, Inc. also saw the court refusing to blue-pencil the non-solicitation clause of an employee agreement, which would have required the court to completely rewrite the restriction to save the employer. 2009 WL 792484, at *15. PrimeSource Building Products, Inc. v. Felten underlined the difference between other states’ laws (in that case Texas), and Illinois concerning blue-penciling, stating that Illinois is not in favor of the practice and only allows courts to enforce restrictive covenants by modifying them, if doing so only involves minor changes. 2017 WL 11500971, at *4 (N.D. Ill. July 6, 2017).
It is not the job of the courts to write enforceable agreements when they are presented with patently overbroad terms, and Illinois courts have consistently declined to fix restrictive covenants that are patently overbroad and will in the exercise of discretion make minor modifications. See, e.g., Cambridge Eng’g., Inc., 378 Ill.App.3d at 456. As the court in Cambridge Engineering stated:
[A]llowing extensive judicial reformation of blatantly unreasonable post termination restrictive covenants may be against public policy, because of the potentially severe effect it could have on the employees who are subject to such covenants. Such reformation, if permitted by courts, would give employers an incentive to draft restrictive covenants as broadly as possible, since the courts would automatically amend and enforce them to the extent that they were reasonable in the particular circumstances of each case. This could have a severe chilling effect on employee post termination activities; an employee unschooled in the law cannot be expected to know to what extent such a covenant is enforceable, particularly since courts apply a multifactor reasonableness standard instead of a bright-line rule.
See also Assured Partners, Inc., 2015 IL App (1st) 141863 at ¶ 42 (refusing to blue pencil overbroad non-solicitation clause and holding that “[w]e decline to rescue a drafter from the risks of crafting a restrictive covenant that is patently overbroad”); Arcor, Inc. v. Haas, 363 Ill.App.3d 396, 406 (1st Dist. 2005) (refusing to modify unreasonable and unfair restrictive covenant); Lawrence & Allen, 292 Ill.App.3d at 141 (“as a result of the significant deficiencies in the post-employment restrictive covenant, we decline plaintiff’s request to make any modifications”); North American Paper Co. v. Unterberger, 172 Ill.App.3d 410, 416 (1st Dist. 1988) (declining to modify overbroad covenant); Roberge v. Qualitek Int’l, Inc., 01 C 5509, 2002 WL 109360, at *7 (N.D. Ill. Jan. 28, 2002) (declining to modify overbroad covenant to “encourage employers to write contracts that are more narrowly tailored to meet their individual needs, rather than overly broad covenants which restrict competition in the marketplace for qualified employees”); Trailer Leasing Co., 1996 WL 392135, at *3 (declining to blue pencil overbroad customer non-solicitation provision).
The court in Medix Staffing Sols., Inc, 2018 WL 1859039, at *4 declined to blue pencil an overbroad restrictive covenant where it would go beyond “slightly alter[ing] an agreement to reflect the intent of the parties.” Rather, the court held that the employer “had the opportunity to draft an appropriate restrictive covenant, failed to, and now must live with their decision not to do so.” Id. (internal citation omitted). When a restrictive covenant at issue suffers not from “one minor deficiency” but “several deficiencies that render [them] unenforceable” then the Court will likely decline to engage in blue-penciling. Assured Partners, Inc., 2015 IL App (1st) at ¶ 52.
Such overbroad provisions, especially when they are enforced through cease and desist letters sent out by a big employment firm that must know that the covenant is unenforceable, have an in terrorem effect on the free movement of employees by forcing middle-class employees into a situation akin to indentured servitude. This misuse of non-solicitation contracts with intentionally overbroad provisions enforced through cease and desist letters interferes with free competition in the wage market and leads to the wage disparagement that is harming our country.[1] A middle-class employee who did not consult with a lawyer may well not know that the restrictive covenant violates Illinois law and might choose to stay in a lower-paying job out of fear that he or she cannot work elsewhere in light of the overbroad language of the contract he signed. Because these provisions violate the important public policies including the Illinois Freedom to Work Act, trying to enforce the Agreement is illegal and courts that have reviewed such provisions have generally refused to blue pencil them. The courts are usually unwilling to save employers who could afford to have large labor law firms draft properly narrow restraints and choose not to.
Illinois enacted the Freedom to Work to give added protections to employees. The Act requires employers to notify employees in writing to seek legal counsel before entering into a non-compete or non-solicitation agreement and to provide the employee with fourteen (14) days to review the agreement.
[1] This unfair use of non-compete agreements has led the President to issue an executive order on the issue. See https://www.whitehouse.gov/briefing-room/presidential-actions/2021/07/09/executive-order-on-promoting-competition-in-the-american-economy/ (“To address agreements that may unduly limit workers’ ability to change jobs, the Chair of the FTC is encouraged to consider working with the rest of the Commission to exercise the FTC’s statutory rulemaking authority under the Federal Trade Commission Act to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”) Legal Scholars, such as Professor Eric Posner, also roundly condemn the now endemic use of such restraints in unduly restraining worker mobility.”) https://www.hamiltonproject.org/assets/files/protecting_low_income_workers_from_monopsony_collusion_krueger_posner_pp.pdf.
Navigating the complexities of non-compete agreements as an employee can be daunting, with significant implications for your career mobility and future employment opportunities. Retaining Lubin Austermuehle to defend your interests in non-compete agreement matters is a strategic choice for several compelling reasons:
- Team Approach to Your Defense: Lubin Austermuehle boasts a team of seasoned attorneys who concentrate in employment law, including the intricacies of non-compete agreements. Our expertise means we understand the legal landscape and can provide a robust defense against restrictive covenants that may unfairly limit your professional growth and opportunities.
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Choosing Lubin Austermuehle means aligning with a legal team that is dedicated to defending your right to work and ensuring that non-compete agreements do not unjustly hinder your career progress. Contact us today for a free consultation at 630-333-0333 or online to discuss how we can assist you in navigating the challenges of non-compete agreements and securing your professional future.