On September 30, 2016, the Illinois Appellate Court, First District, affirmed an order of the circuit court that awarded $1 million to a former employee for breach of an employment agreement. Reed v. Getco, LLC, 2016 IL App (1st) 151801 (9/30/2016). The subject employment contract contained a unique provision: the employee agreed to not compete with the employer for six months after termination of his employment for any reason; and the employer agreed to pay the employee $1 million if his employment terminated for any reason, unless he violated the non-competition covenant (or any other term of the agreement). The agreement also gave the employer the right to modify the restrictive covenant in its “sole and absolute discretion;” but provided that no waiver or modification of any term of the agreement would be effective without a writing signed by the party against whom the modification is enforced. Six years after signing the agreement, the employee resigned. A week later, the employer sent him an email stating that the restricted (non-compete) period is zero months or is waived; and he would not receive any non-compete payments.
The former employee filed a lawsuit against the employer for specific performance of the employment contract, breach of contract, and fraud. On cross-motions for summary judgment, the trial court ruled in favor of the former employee. The appellate court agreed with the trial court that the employer could not waive the non-competition provision because any waiver or modification of the agreement required a writing signed by the party against whom the waiver or modification is enforced. The former employee did not sign any written waiver or modification to the non-competition provision and, therefore, the employer’s attempt to waive it was invalid and ineffective. Additionally, there was no language in the employment agreement to indicate that the employer’s decision to enforce the non-competition restrictions was a condition precedent to the payment. The only conditions that would excuse the employer from making the payment were the former employee’s breach of the agreement or a judicial determination that the non-competition provision was unenforceable. Thus, the employer did not have the right to unilaterally waive the non-competition provision to avoid its obligation to pay the $1 million. The intent of the parties was to provide the former employee with a mechanism to request that his non-competition restrictions be modified in the event that he was offered other employment that might violate the restrictions. The intent was not to give the employer the sole and absolute discretion to modify the restrictions. The appellate court also held that the former employee had no duty to mitigate his damages, even though he declined lucrative job offers during the restricted period, knowing that the employer did not intend to enforce the non-competition restrictions. Generally, when an employer breaches an employment contract, the employee has a duty to mitigate damages by making reasonable efforts to find other employment. However, in this case, the deal was that the employer would pay the employee $1 million in exchange for his promise to not engage in competitive activity for six months after his departure. The intent of the agreement was that the employee would not work during the six-month period and, therefore, the doctrine of mitigation of damages did not apply.