Court decisions complicate non-compete clauses

By Jim Kendall

This column originally appeared in the May 11, 2015 Daily Herald

                Because Dave Kendle is an attorney – he deals primarily with closely held businesses and is a partner at Kendle Mikuta & Fenstermaker, Chicago – skeptics might dismiss his suggestion to “be very cautious” when it comes to non-compete clauses.

Skeptics might want to pay attention, however.

“There are all kinds of complicated rules that will be scrutinized much more carefully” if there is an employment dispute relating to a non-compete, Kendle says. “You could be using the exact same agreement for two different employees, but one might be enforceable and the other not.”

The difficulty centers on two relatively recent decisions by the Illinois Appellate Court involving non-compete issues. Here’s my lay summary of what the courts have done:

* Required “sufficient compensation” to an employee signing a non-compete. Sufficient compensation is undefined, which leads management-focused employment attorney Renée L. Koehler, partner at Koehler & Passarelli LLC, Woodridge, to recommend “specific consideration” for an employee signing a non-compete.

“This is the biggest test for an enforceable deal: Whether an employer has paid enough for the employee’s non-compete promise,” lawyer Bill Price writes in a yet unpublished article.

* Established a two-year employment rule. The courts, Price continues, now look for at least two years of promised future employment rather than the standard employment-at-will situation.

“Historically, courts have required a ‘proper purpose’ for non-competes,“ says Oak Brook attorney Jim Poznak, Poznak Law Firm Ltd. Additionally, he adds, non-competes traditionally have been required to be “limited in duration and scope.”

But the recent Appellate Court decisions, which essentially mandate that employers provide direct, additional compensation and guarantee two years of employment, perhaps should force business owners to re-think – but not necessarily give up – their non-compete ideas.

“The problem is that judges hate to enforce non-competes because they restrict freedom of contract,” says Price, Warrenville-based GrowthLaw. “You can protect intellectual property,” including such things as customer lists and relationships, Price continues, “and you can charge for training if an employee leaves,” but the issue is complicated. (So you know, Price is an occasional client of mine.)

The ability to perhaps recoup training dollars could make Sherri Evans happy. Evans, a pseudonym for what should be obvious reasons in a real situation, wants her money back from an employee who had signed a two-year non-compete but left to go to work for a competitor shortly after completing some specialized education.

Evans says the tab for the additional education cost her company “north of $10,000.”

The education, she says, “is part of how we invest in our people, but we want a fair return” on the dollars spent.

Is a non-compete still worth the effort? Maybe. Poznak notes the deterrent factor non-competes provide; Koehler says the value “depends on the nature of the business, how competitive it is and what (the employer) is seeking to restrict;” and business owner Evans talks about protecting intellectual property.

 

© 2015 Kendall Communications Inc. Follow Jim Kendall on LinkedIn and Twitter. Write him at Jim@kendallcom.com. Listen to Jim’s Business Owners’ Pod Talk at www.kendallcom.com.

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