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Illinois Employers Should Not Go Overboard With Non-Compete Agreements!

In order to have non-compete agreements which have a chance of being found legally enforceable by an Illinois judge, Illinois employers must carefully figure out the scope of activities to be restricted by their proposed non-compete agreements. Employers relying on the protection of a non-compete agreement naturally want to protect the company's legitimate business interests. The problem is that a one-size-fits-all broad restriction is more comprehensive than a narrow restriction but runs the extremely high risk it will be judged unreasonably broad and therefore legally unenforceable in Illinois.

Illinois employers often want to use broad restrictive non-compete clauses, especially with higher-level key employees, in an effort to carefully protect their business interests (customer base, sales strategies, special manufacturing processes, etc.). Nonetheless, it is important to remember that overly broad and very restrictive non-compete clauses are strongly disfavored by judges in many states, including Illinois. Such very broad restrictive non-compete agreements may well "backfire", resulting in the complete invalidation of the entire non-compete agreement.

RECENT ILLINOIS FEDERAL COURT CASE: A recent decision by a federal court in Illinois, Medix Staffing Solutions, Inc. v. Dumrauf (N.D. Ill. Apr. 17, 2018), demonstrates an overbroad non-compete agreement "backfiring" with an Illinois judge. The federal judge harshly criticized the language in the non-compete agreement (used often in non-compete agreements throughout the United States), finding the particular language so broad and all-encompassing as to be legally unacceptable.

MEDIX'S NON-COMPETE WAS OVERLY BROAD: Judge Ellis of the Northern District of Illinois found Medix Staffing Solutions, Inc. (Medix hereinafter) was using a non-compete agreement excessively broad on its face. In its very broad non-compete agreement, Medix restricted Dumrauf, a former Medix employee, from taking ANY job with any other company that is in the same kind of business as Medix. The unfortunate non-compete language at issue prevented Dumrauf from working (within 50 miles of his former office) for 'any business' that 'offers a product or services in actual competition with Medix' or which may be engaged 'in the Business of Medix.'

Judge Ellis found this non-compete language legally unacceptable because it failed to consider what services Dumrauf actually performed for Medix or whether he or his new company actually compete with Medix. Rather, the non-compete agreement barred Dumrauf from working for any company that merely functions in the same fields as Medix, regardless of whether that company is an actual Medix competitor.

JUDGE REFUSED TO MODIFY THE BROAD RESTRICTION: Judge Ellis noted that judges do have the legal power to modify overbroad restrictive covenants, but Judge Ellis pointedly refused to modify the Medix non-compete agreement under legal review. Judge Ellis (harshly) decided that Medix must instead "live with [its] decision" not "to draft an appropriate restrictive covenant."

According to Judge Ellis, this Medix non-compete agreement was patently unreasonable because an employer cannot prevent a former employee from "working for a competitor in a noncompetitive capacity." Therefore, Judge Ellis refused to "blue pencil" (i.e., modify) the Medix agreement, citing cases in Illinois stating that a court should refrain from modifying a covenant that is so broad as to be patently unfair as written. Judge Ellis decided that the Medix agreement was indeed one of these patently unfair non-compete agreements and therefore refused to narrow its scope.

MEDIX FAILED TO SHOW THE RESTRICTIVE COVENANT WAS NECESSARY: The Medix case thus again illustrates the legal principle that employers should draft restrictions narrowly, considering their most important business interests and go no further, particularly since Illinois judges rarely save overly broad restrictions by modifying them per blue-penciling clauses.

CONCLUSION: The Medix decision is a warning for Illinois employers, especially if they use very restrictive non-compete agreements with broad 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 non-compete law in Illinois.

As illustrated by the Medix decision, the often seen broad non-compete language, barring employment with any other company in the same industry as the employer, in any capacity whatsoever, is almost always ruled invalid and legally unenforceable under Illinois non-competition law.

If any readers want to discuss any aspect of non-compete agreements or have a non-compete agreement drafted, please contact Attorney Nancy E. Joerg at Wessels Sherman's St. Charles, Illinois office: 630-377-1554 or email her at [email protected].

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