On October 26, 2015, the Illinois Appellate Court held that non-competition, non-solicitation, and confidentiality provisions contained in an employment contract were unenforceable as a matter of law. Assured Partners, Inc., et al. v. Schmitt, 2015 IL App (1st) 141863. This case involved a “take it or leave it” employment agreement that an employer required an employee to sign during his employment in order to keep his job. The agreement contained the usual restrictive covenants. After the employee resigned, the employer filed a lawsuit to enforce the restrictive covenants against him. A non-competition agreement is enforceable only if it: (1) is no greater than is required to protect a legitimate business interest of the employer; (2) does not impose an undue hardship on the employee; and (3) is not injurious to the public. In addition, the scope of the activity, temporal, and geographic restrictions must be reasonable. The court found the non-competition provision unreasonably broad in terms of activity, temporal, and geographic scope. The non-compete prohibited the employee, an professional liability insurance broker, from working in that industry for 28 months in all 50 states.
The court also struck down the non-solicitation provision as invalid. Under Illinois law, a non-solicitation agreement is enforceable only if it is reasonably related to the employer’s interest in protecting customer relations that its employee developed while working for the employer. However, the subject non-solicitation provision prohibited the employee from soliciting business from existing as well as potential customers of the employer and its subsidiaries, including those with whom the employee had no contact during his employment. The restrictive covenant was therefore broader than necessary to protect the employer’s interest in preventing the employee from exploiting the customer relationships that he developed during his employment. Accordingly, the court declined to enforce it.
Most significantly, the court invalidated a standard confidentiality provision that is commonly used in most employment agreements. The confidentiality provision prohibited the employee from disclosing any information he obtained during the course of his employment concerning the business or affairs of the employer and its affiliates and subsidiaries. This is typically the manner in which the phrase “confidential information” is defined in most confidentiality provisions (along with a laundry list of examples). The court held that the confidentiality restriction was overly broad and an impermissible restraint on trade. Moreover, the provision was not saved by the usual exception for ‘information that becomes generally known to the public.” Under Illinois law, post-employment restrictive covenants that require absolute secrecy of any and all company information are unreasonable and unenforceable.
Lastly, the court declined to judicially modify “blue pencil” the restrictive covenants to narrow their scope to make them enforceable under Illinois law. While a court may choose to modify an overly broad restrictive covenant instead of invalidating it outright, the general rule is that a court will not “blue pencil” a restrictive covenant that is fundamentally unfair, i.e., where its terms clearly extend beyond the scope necessary to protect a legitimate interest of the employer.
This Illinois Appellate Court decision sounds the alarm for Illinois employers who have complacently been using the same broad boilerplate restrictive covenant language over and over again in their employment contracts. In view of this decision, Illinois employers should re-evaluate and re-draft their restrictive covenants so that they are narrowly tailored and enforceable.