In a decision issued in late October, AssuredPartners, Inc. et al. v. William Schmitt, 2015 IL App. (1st) 141863 (Ill. App. 2015), the Illinois Appellate Court struck down as overbroad and unreasonable, the noncompete, nonsolicit and confidentiality provisions in an employment agreement. The Court then refused to judicially modify or “blue pencil” these provisions because the Court deemed their deficiencies “too great to permit modification.” This decision is essentially a primer on current Illinois law regarding restrictive covenants and confidentiality agreements.
Starting with the noncompetition provision at issue, the Court held that it was overbroad because it restricted the former employee, a wholesale insurance broker of lawyers’ professional liability insurance, from a broader scope of activities than those he engaged in during his employment (i.e., it prohibited him from working with all types of professional liability insurance, not just the type that he actually brokered).
Additionally, the Court held that the geographic scope of the noncompetition agreement (i.e., all 50 states and the territories of the United States) clearly exceeded “that which is necessary to protect ProAccess and Jamison from threats against its business interest” and that such geographic overbreadth imposed “an undue burden” on the employee “by forcing him to work in another country if he wishes to continue earning a living as a wholesale broker specializing in LPLI or any other type of professional liability insurance.”
Finally, the Court noted that the length of the restriction – 28 months – was a “significant period to impose on an employee whose effective term of employment . . . lasted only 20 months.”
Accordingly, the Court held that the noncompetition provision failed to meet the requirements of reasonableness set out in the Illinois Supreme Court’s most recent pronouncement in this area, Reliable Fire Equip. Co. v. Arredondo, 2011 IL 111871 (2011).
Turning next to the post-employment, customer non-solicitation provision, the Court likewise found it to be unreasonably overbroad, as it applied to actual and potential customers of the plaintiff entities and of their subsidiaries, regardless of whether they were involved in the same activities as the former employee – and regardless of whether the former employee ever had contact with them while working for ProAccess.
Finally, the Court turned to the contractual confidentiality provision, which “prohibit[ed] the use or disclosure of any ‘information, observations and data (including trade secrets) obtained by [Schmitt] during the course of [his] employment with [Jamison/ProAccess] concerning the business or affairs of [plaintiffs] and their respective Subsidiaries and Affiliates.” The Court held that this clause was broad enough to cover “ virtually every fact, plan, proposal, data, and opinion that he became aware of during the time he was employed by ProAccess – without regard as to whether such information was in any way proprietary or confidential in nature, or whether he in fact obtained the information through a source outside of his work. It is patently overbroad.”
Additionally, the Court noted that it “cannot assume that the information Schmitt acquired during his employment with ProAccess resulted solely from plaintiffs’ businesses, as opposed to the customer relationships that he had established prior to his employment.” The Court emphasized that this confidentiality provision “does not merely restrict the dissemination of confidential information; it drastically limits Schmitt’s ability to work in the insurance industry by preventing him from using any knowledge that he gained while in plaintiffs’ employ, regardless of whether he gained such knowledge, directly or indirectly, as a result of his employment” (emphasis in original).
For good measure, the Court further explained that the confidentiality clause is not saved because of its exception for confidential information that “becomes generally known to and available for use by the public.” The Court explained that “[t]here is a great deal of information that is not ‘generally’ known to the public; not all of it merits protection under a confidentiality provision.”
Because the Court found these deficiencies to be so significant, it held that they were “too great to permit modification.” Accordingly, rather than judicially modify or “blue pencil” any of these provisions, the Court struck them down.
Over all, the notion that permeates throughout AssuredPartners is that the restrictions at issue were fundamentally unfair to the individual former employee.
Coming on the heels of the Illinois Appellate Court’s blockbuster decision in Fifield v. Premier Dealer Services, Inc. (in which the same court held that, absent other consideration, two years of employment is required for a restrictive covenant to be deemed supported by adequate consideration – even where the employee signed the restrictive covenant as a condition to his employment offer – and even where the employee voluntarily resigned), AssuredPartners is a reiteration of the degree of judicial scrutiny currently being applied to restrictive covenants in Illinois.
In light of these decisions, Illinois employers are advised to draft as narrowly as possible, to pay particular heed to the consideration provided, to carefully consider choice of law and forum selection provisions, and to review existing restrictive covenants in light of the degree of judicial scrutiny currently being applied.
- Member of the Firm