Illinois Appellate Court Refuses to Enforce or Modify Overbroad Restrictive Covenants

By Theresa Bresnahan-Coleman on December 17, 2015 | Posted in Blog

The Illinois First District Appellate Court recently affirmed a circuit court’s refusal to enforce or modify restrictive covenants contained in an employment agreement, holding that the covenants failed the test of reasonableness articulated by the Illinois Supreme Court in 2011 in Reliable Fire Equipment v. Arredondo. In light of this decision, Illinois employers should take care when drafting restrictive covenants to ensure they are broad enough to cover their legitimate business interests, but not so all-encompassing that they are viewed as an unreasonable restraint on an employee’s ability to earn a living with a future employer. If a covenant’s scope is too broad, courts in the First District may decline to enforce any part of the provision, leaving employers unprotected.

In AssuredPartners, Inc. et al. v. Schmitt, the appellate court held that the restrictive covenants contained in an employment agreement were overbroad and unenforceable as a matter of law, and refused to modify any of the restrictive covenants because the deficiencies were too great to permit modification. The non-competition provision was unenforceable because it did not limit the prohibition on the former employee’s activities to only those related to his specialty of brokering lawyers’ professional liability insurance (LPLI), but rather extended to all business in which the employer engaged. Even if the provision was construed to include only LPLI-related activities, it was still unreasonable because the geographical scope was not narrowly tailored to protect the employer’s business interest, the employer had no legitimate protectable interest in business relationships with potential customers not included on its customer list, the employee would be forced to work in another country if he wished to continue working as a wholesale broker specializing in LPLI or any other type of professional liability insurance, and he would be prevented from working in professional liability insurance in this country for a period of time longer than he had worked for the employer.

The non-solicitation provision was unenforceable because it prohibited the employee from working in the future with customers, suppliers, and other business entities with which he never had contact while he worked for the employer. The court declined to narrow the scope of the patently overbroad provision to only those clients which employee serviced while he was employed. Finally, the confidentiality provision was patently overbroad and unenforceable because it prohibited the employee from using any information he obtained or any observations he made while working for the employer, whether or not such information was proprietary or confidential in nature. The appellate court declined to modify any of the restrictive covenants because their deficiencies were too great to permit modification, and concluded that the employer could not sustain any claims against the employee that would require the court to enforce the covenants.

The outcome in AssuredPartners warns employers in the First District that they cannot simply rely on “boilerplate,” all-encompassing language in their restrictive covenants with the expectation that a court will enforce at least part of a restrictive provision. Rather, employers should work closely with their employment counsel to craft language that puts reasonable, enforceable parameters on their legitimate business interests. Considering the uncertain state of affairs on what constitutes adequate consideration for a restrictive covenant in Illinois, employers need to be as proactive as possible when preparing restrictive covenants to ensure their enforceability and protect their business interests.