Illinois Appellate Court Finds Non-Compete Restrictions Over-Reaching and Affirms Court Decision Not to Blue Pencil
A recent decision from an Illinois Appellate Court suggests that employers with non-compete agreements “built to scare” may end up with an unenforceable contract and even the loss of confidential information under Illinois law. AssuredPartners, Inc. v. Schmitt (October 27, 2015 1st Dist.) Illinois Courts continue to carefully scrutinize contracts containing post-employment restrictions over concerns about over-reaching, especially restrictions that are seen as overbroad in geographic reach as well as attempts to keep an ex-employee completely out of an industry on a nationwide basis. In Assured Partners, the named plaintiff sought to prevent an insurance executive from working anywhere in the U.S. within the particular segment of the insurance industry he had worked all his life.
Defending the broad geographic scope of the agreement, the former employer apparently pointed out that the executive could work in the U.K., but neither the appellate court nor the trial court judge saw this as a meaningful option. Both courts also held that the restriction on any work involving professional liability insurance was overbroad considering the executive only worked in the area of legal liability insurance. And, not only did the Appellate Court find the non-compete clause overbroad and thus unenforceable, it went on to find that the non-solicitation clause was also overbroad because it attempted to prevent solicitation of the former employer’s prospects who were not yet customers, many of whom the executive had not himself had any contact with. Considering that the executive walked off with lists of contract expiration dates, as he did in this case, the court’s conclusion that even the confidentiality clause was overbroad because it would ban the former employee from using essentially anything he learned or observed while he was employed was especially notable.
The trial court and Appellate Court also declined to allow the employer to pull the cord on its reserve chute – application of a blue-pencil clause in the executive’s agreement. The trial court held that the agreement was “not a candidate for judicial reformation.” The Appellate Court agreed, stating, “[w]e decline to rescue a draftor from the risks of crafting a restrictive covenant that is patently overbroad” and noting that blue-penciling is only appropriate where the overreach was minor and in this case the agreement over-reached in three ways. Finally, the Appellate Court went one step further and denied the former employer’s motion to amend the complaint, cutting off the employer from any remedy.
This case reminds employers that:
Contracts drafted for deterrence factors may not be so scary anymore and may leave the employer with no recourse when the employee actually walks off with customers’ contract expiration dates and begins using them to start a new business. Off the shelf contracts may also be too broad and are risky for this reason.
Courts, at least in Illinois, cannot be counted on to re-write overbroad contracts to help employers who the court views as having attempted to over-reach.
Employers need to make sure that their post-employment restrictive covenants go only so far as to protect their current interests and no further. Illinois courts have shown a low tolerance for post-employment restrictions beyond those designed to protect losses to an employers’ specific and legitimate business interests.