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The Six Commandments of Non-Compete Agreements
Being wise about knowing which clauses to include in a contract will help you in the long run. This is for reason being that a contract that is not enforceable on some level could run the risks of becoming void and unenforceable. In turn, that can cost business and profit. The basic principles of materiality can change from year to year. An awareness in advance can save. We are here to help with the following list:
1. Non-Compete Agreements are Enforceable to the Extent That a Business Interest is ProtectedThis has always been at the core of non-compete interests. Having been at the core means it has also been subject to scrutiny. There are plenty of court decisions that have considered this more closely which includes the fairness test espoused in many jurisdictions Is what the employer seeking to protect its investment or is it making it unfair for the employee to use information, relationships or resources that they acquired while employed by a former employer? That is the question and agreements will be assessed on the management of their exploitative nature.
2. Forum Selection Clauses are Usually Enforceable Across the CountryClauses that choose not to enforce another state’s law are generally enforceable unless the violation of public policy is at stake. In the case of Stone Surgical, LLC v. Stryker Corp., Case No. 16-1434 (6th Cir., May 24, 2017), an employee was subject to a non-compete with Michigan choice of law and forum clause. Enforceability of such clauses was challenged when that employee transitioned to work with a competitor of the other jurisdictional state of Louisiana. It was noted on appeal at the federal level that Michigan law would favor such clauses.
3. Broad Non-Compete Restrictions are Non-RestrictiveIn the case of Golden Road Motor Inn v. Islam, 132 Nev. Op. 49 (Jul. 17, 2016), the Nevada Supreme Court found that a one-year, 150-mile noncompete imposed was too broad. The court had three options which it considered:
- To re-write the provision without restriction to a more reasonable radius;
- To remove the offending clauses or provisions; or
- To not restrict the terms and conditions
Since it was considered broad, there was no restriction applied.
4. The Requirement of ConsiderationConsideration can vary from year to year. For that reason when agreements are renewed, this is a factor that the courts will determine and account for. A long term agreement with a non compete clause is more likely enforceable than one that is renewable on an annual basis: American Air Filter Co., Inc. v. Price, 2017 NCBC 54 (N. Car. Bus. Ct., June 26, 2017).
5. Former Employees are Not Wholly RestrictedAn example can be seen in Fidelity Brokerage Services, LLC v. Brett Rocine, Case No. 17-cv-4993-PJH (N.D. Cal., Sep. 7, 2017). After working with the company and calling on clients, an employee abruptly announced his departure. When it discovered that they had gone to work for a direct competitor and was calling on and soliciting the very same customer, it sent a cease and desist letter, reminding of the contract terms. This all happened within a year after separation and the employee had signed a restrictive covenant that prohibited him from using all confidential information, including the solicitation of former clients in order to move business away from a prior employer. The company sued for breach of contract and misappropriation of trade secrets. The court issued a temporary restraining order and rejected that this information was publicly available and not known to the ex-employee otherwise.
6. The New Employer Needs to be Mindful of a Tortious Interference ClaimWithin the dynamics of a new relationship between an employee and employer, a possible dispute involving former employees is the inquiry of whether new employees have contractual restrictions on their ability to become employed. As the case of Acclaim Sys. v. Infosys, Ltd., 2017 U.S. App. LEXIS 2325 (3rd Cir. 2017) illustrates, it is hard to tortiously interfere with a contract, of which, the company is unaware.
ConclusionRestrictive covenants can always be a point of contention in non compete. Knowing these basic essentials as a protective measure will help in the drafting of the terms and conditions laid. If you need further assistance, feel free to contact our offices.
Our Illinois 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 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 Elmhurst, Wimette and downtown Chicago, our business dispute lawyers take cases from throughout the Chicago area many other cities throughout Illinois. 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.
