A recent federal case in Chicago highlights the importance of drafting specific non-compete clauses that fully comply with Illinois law (or the law of any applicable state). In order to protect themselves, most business owners require their employees to sign non-compete clauses to prevent client-poaching by former employees. Unfortunately many of those clauses become worthless because their restrictive language is too broad. In one recent case, a director of a Chicago-based staffing agency, who worked in the company’s Scottsdale office, had his non-compete clause thrown out entirely because it was too broad.
The director’s non-compete clause covered 18-months after employment within a 50 mile radius of Scottsdale, and restricted him from any affiliation “with the ownership, management, operation or control” of any business in direct or indirect competition with the staffing agency. The director took a job with a direct competitor, where only 10 percent of his business activity would be conducted in Phoenix, fewer than 50 miles from Scottsdale.
Although neither the 50-mile radius nor the 18-month time span were an issue, the remaining restrictions were. The court ruled that the covenant prevented the director from taking almost any role with a competitor, no matter how far removed from competition. The court even ruled that it would not modify the clause to be more restrictive, but rather, threw it out completely. This ruling was based on Illinois precedent that courts should not modify these covenants when they are so broad as to completely ban competition. Therefore, although the staffing-agency thought it was protecting itself by having a broad non-compete clause, it ended up learning an important lesson, and other business owners should take note.
Thus, if your company wants to ensure its non-compete clause is appropriately specific under Illinois law, or the laws of any other state, and will hold up under the court’s scrutiny, contact the attorneys at Rock Fusco & Connelly who have an intimate knowledge of non-compete clauses and employment agreements.