On April 17, 2018, a U.S. District Court judge for the Northern District of Illinois ruled that under Illinois law, a covenant not to compete is unenforceable per se if the covenant, on its face, restricts an employee from taking any position with another company that engages in the same business as the employer, without regard to whether that position is similar to the position that the employee held with the employer or otherwise competes with the employer. Medix Staffing Solutions, Inc. v. Dumrauf, 17 C 6648 (N.D.Ill 4/17/2018). The employee entered into an employment at-will, confidentiality, and non-compete agreement with the employer and subsequently executed an employee confidentiality/non-compete agreement. The agreement included a covenant not to compete that restricted the employee, for a period of eighteen (18) months following termination of employment, within a radius of 50 miles from any office of the employer where the employee performed services for the employer, from employment in any capacity with any business that either offers a product or services in actual competition with the employer, or which may be engaged directly or indirectly in the employer’s business.
The employee resigned his employment and took a position with a direct competitor of the employer, which has an office within a 50-mile radius of one of the employer’s offices where the employee worked for the employer and performs some work for the competitor. The employer filed a lawsuit against the employee for breach of the non-competition agreement. The employee filed a motion to dismiss the complaint on the basis that the covenant not to compete is overbroad and unenforceable. He argued that the covenant not to compete is unenforceable because it is a blanket prohibition on engaging in any activity for a competitor. He also argued that the covenant would result in an undue hardship on him, and that the employer failed to demonstrate a sufficient legitimate business interest in enforcing the covenant.
Under Illinois law, covenants not to compete are disfavored and held to a high legal standard. A covenant not to compete is only enforceable if its restrictions are reasonable and necessary to protect a legitimate business interest of the employer. While reasonableness is a question of law, ordinarily a court cannot determine it in the abstract but must consider the unique circumstances of each case. These include the hardship caused to the employee, the effect on the general public, and the scope of the restrictions. Additionally, the employer must establish that the full extent of the restraint is necessary to protect its legitimate business interests. Although an employer faces an uphill battle to enforce a non-compete agreement, courts will only find covenants not to compete facially invalid in extreme cases in which the covenant is patently unreasonable.
In this case, the court found that the covenant is invalid and unenforceable on its face because it would bar the employee from any employment or other relationship with any company directly or indirectly engaged in the employer’s business. The covenant would bar the employee from being employed by any company that also works in the same fields as the employer, whether or not that company is an actual competitor. Moreover, the covenant would bar the employee from taking any position whatsoever with another company in the employer’s industry, not just a role that was the same or similar to his position with the employer. The employee, who was a Director, argued that the covenant would bar him from even working as a janitor with another company in the industry. The court agreed, stating that “…the covenant clearly would prevent Dumrauf from taking any number of more plausible roles at another industry player, no matter how far removed from actual competition with Medix….Such a prohibition is unenforceable.” The non-compete was unenforceable because it would have prohibited the employee from working for any company in the same business as the employer in any capacity whatsoever and, therefore, was an impermissible restriction on competition per se. Thus, the court granted the employee’s motion to dismiss the employer’s complaint on the ground that the covenant is so overly broad in scope that it is unreasonable on its face and unenforceable. The court also refused to “blue-pencil” (modify) the agreement because the scope is so broad as to be “patently unfair.”
This decision is instructive for Illinois employers, many of whom utilize boilerplate non-compete agreements with language similar to that struck down by the court in this case. Non-competition agreements should be narrowly and carefully tailored on an individualized basis with attention to the current state of the law. As illuminated by this decision, the typical blanket restriction, on employment with any other company in the same industry as the employer, in any capacity whatsoever, is invalid and unenforceable under Illinois non-competition law.