U.S. - Illinois

2017.09.17 Social Media and Non-solicitation Agreement. See this discussion of a case discussing Illinois law and other state court decisions relevant to determining when a former employee's use of Linked-In and other social media crosses the line into violating a non-solicitation provision. 

Seminal Case -- Reliable Fire (12/1/2011):

"In sum, the legitimate business interest test is still a viable test to be employed as part of the three-prong rule of reason to determine the enforceability of a restrictive covenant not to compete. However, the two-factor test created in Kolar, in which a near-permanent customer relationship and the employee’s acquisition of confidential information through his employment are determinative, is no longer valid. Rather, we adopt the position of Justice Hudson’s special concurrence, which is: whether a legitimate business interest exists is based on the totality of the facts and circumstances of the individual case. Factors to be considered in this analysis include, but are not limited to, the near-permanence of customer relationships, the employee’s acquisition of confidential information through his employment, and time and place restrictions. No factor carries any more weight than any other, but rather its importance will depend on the specific facts and circumstances of the individual case."

Note: the Reliable Fire case modifies 36+ years of precedent established by an appeals court, under which Illinois courts would limit an employer's legitimate business interest to protecting either confidential information or permanent and near-permanent customer relationships.

2010_March Oce North America, Inc. v. Brazeau, 2010 U.S. Dist. LEXIS 25523 (N.D. Ill. Mar. 18, 2010), providing this recap of Illinois law regarding overly broad noncompetes:

  • There is no tempering restriction in this agreement, which prohibits defendant from working for, consulting with or acquiring an interest in any firm, nationwide, that designs, makes, sells or services any product that is "the same as or similar to" products plaintiff designed, made, sold or serviced in the last year of defendant's employment. (First Am. Compl., Ex. B, 2007 Agreement ¶ 2(b).) This agreement is akin to the one in Cambridge Engineering, Inc. v. Mercury Partners 90 BI, Inc., 879 N.E.2d 512 (Ill. App. Ct. 2007), which barred the defendant from "directly or indirectly, engag[ing] in any activity for or on behalf of Employer's competitors, or engage in any business that competes with Employer." Id. at 524. The court said the agreement's "blanket bar on all activities for competitors" was unenforceable. Id. at 525-26; see Lawrence & Allen, Inc. v. Cambridge Human Resource Group, Inc., 685 N.E.2d 434, 444 (Ill. App. Ct. 1997) ("Courts 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." (citations omitted)). Because this agreement, like the one in Cambridge Engineering, bars defendant from working in any capacity for or with a company that competes with plaintiff in any segment of the copy equipment and services market nationwide, it is unenforceable.

Restricted Period

2013.Jun.24 Two Years of Employment Required.  Here is a quote from Fifield v. Premier Dealer: "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. Diederich Insurance Agency, LLC v. Smith, 2011 IL App (5th) 100048, ¶ 15; see also Lawrence & Allen, 292 Ill. App. 3d at 138; Brown, 379 Ill. App. 3d at 728-29. This rule is maintained even if the employee resigns on his own instead of being terminated. Diederich, 2011 IL App (5th) 100048, ¶ 15; Brown, 379 Ill. App. 3d at 729. In this case, Fifield resigned from Premier after being employed for slightly longer than three months. This period of time is far short of the two years required for adequate consideration under Illinois law. Additionally, the first-year provision in the agreement does not affect the application of the two-year standard for adequate consideration. At most, Fifield's employment was only protected for one year, which is still inadequate under Illinois law."  

Sale of Business Rules

Business Records Corp. v. Lueth, 981 F.2d 957 (7th Cir. 1992, applying Ilinois law), stating:

The threshold issue in this case is whether the noncompetition agreement is properly characterized as a "covenant to a purchaser," which is a covenant made ancillary to the sale of a business, or a "covenant to an employer," which is a covenant made ancillary to an employment contract. The distinction is crucial because "courts are less likely to declare [a covenant to a purchaser] invalid." Hamer Holding Group, Inc. v. Elmore, 202 Ill.App.3d 994, 1008, 148 Ill.Dec. 310, 319, 560 N.E.2d 907, 916 (1990); Restatement (Second) of Contracts § 188 cmt. b (1979). The distinction is rooted in the differences "in the nature of the interests sought to be protected in the case of an employer on the one hand [and] the case of a buyer on the other." O'Sullivan v. Conrad, 44 Ill.App.3d 752, 755, 3 Ill.Dec. 383, 386, 358 N.E.2d 926, 929 (1976). A covenant to a purchaser serves to preserve the value of what the purchaser has bought, while a covenant to an employer serves to protect information or relationships that the employee might acquire by virtue of the fact that the employer hired him. Restatement (Second) of Contracts § 188 cmt. b; Blake, Employee Agreements Not to Compete, 73 Harv.L.Rev. 625, 646-47 (1960). The purchaser of a business has an interest in preserving the goodwill that he purchases (which may include clientele in some cases), particularly in a service industry. Note, Validity of Covenants Not to Compete: Common Law Rules and Illinois Law, 1978 Ill.L.Forum 249, 253. A covenant to a purchaser also poses a lesser threat of restraining trade or competition because the seller has bargaining power that a typical incoming at-will employee would not be expected to have. Indeed, covenants to a purchaser were the first restrictive covenants allowed at common law, in recognition of the catalytic role such covenants play in promoting the transferability of property, thus enhancing trade and competition. See Mitchel v. Reynolds, 1 P.Wms. 181, 24 Eng.Rep. 347 (K.B. 1711); Sarnoff v. American Home Prods. Corp., 798 F.2d 1075, 1083 (7th Cir.1986).

Though there is no established litany of requirements, Illinois courts consider several factors when determining if a restrictive covenant is to a purchaser or to an employer. The courts generally consider "facts bearing on the intent of the parties to protect the integrity of the sale." Hamer Holding, 202 Ill.App.3d at 1008, 148 Ill.Dec. at 319, 560 N.E.2d at 916. Such facts may include: whether the covenant was a condition precedent to the sale, id.; whether the covenant was incorporated into the sale agreement, id.; and the time that the parties signed the covenant in relation to the time they signed the sales agreement, O'Sullivan, 44 Ill.App.3d at 756, 3 Ill.Dec. at 386, 358 N.E.2d at 929.

... Lueth argues that the covenant's geographical restraint is unreasonable because it essentially bars him from working anywhere. But, as the district court recognized, the covenant bars him from competing with BRC "in any state in which Employee worked on a full-time basis during the time of Employee's employment with [BRC]." The court read "any state" to mean Illinois. And even though Lueth argues that the court erred by reading the covenant to be limited to Illinois, the fact that the court so held and its injunction so reads now confines the geographic restraint to Illinois. Wyatt v. Dishong, 127 Ill.App.3d 716, 719, 83 Ill.Dec. 1, 3, 469 N.E.2d 608, 610 (1984) (reviewing court may look to injunction rather than contract when covenant specifically allows a court to modify its limits). This is a reasonable limit if it covers only the area where Lueth's employment might put at risk BRC's interests; that is, the restraint is reasonable as long as it is coextensive with the goodwill BRC bought by bringing Lueth to its business. The court found that Lueth's expertise extended throughout the state of Illinois, and that it was Lueth's statewide reputation and the loyalty of his statewide clients that BRC purchased. This was not clearly erroneous. BRC competed with Thornber throughout the state for sales in the market for election equipment. When BRC bought Thornber it also bought a restraint that would keep its top employees (Lueth included) from filching customers that BRC reasonably expected to acquire as part of its deal. Because the restriction did not extend beyond the borders of Illinois--the former forum for the competition between BRC and Thornber--the restriction was reasonable. See Restatement (Second) of Contracts § 188 cmt.

The court also ruled correctly that the two-year time limitation was reasonable. The reasonableness of the time restraint is linked to the time it would take BRC, should Lueth leave, to make Lueth's goodwill its goodwill. The court linked the time to the time period between statewide elections. This finding was not clearly erroneous.