Chicago Executive Lawyer Blog

If I had a nickel for every time and executive told me that their employer told them the company never enforces the non-compete, I'd have a lot of nickels. Almost every written contract drafted by a half-way decent attorney includes what is called an integration clause. An integration clause essentially says that the written agreement is the entire agreement between the parties and that no oral modifications or promises hold any water. In other words, your boss might tell you that the contract means nothing, but a court is likely only going to rely on what was agreed to in writing.

Despite being incredibly smart and well educated, many executives trust what their boss tells them, signs the non-compete agreement and then breach the agreement when they try to move on to new employment in the future. Sometimes it works and life goes on. Other times, nasty letters are sent and/or lawsuits are filed.

When the nasty letters are sent they are usually sent to both the former employee and the new employer. The new employer either steps in and defends or cuts their losses and moves on. Cutting their losses usually means employment termination for the executive.

So how can all this be avoided? Sometimes it can't; and that's life. But, in most cases there is a pragmatic solution that likely could have been determined much earlier. There are at least two occasions when an executive can take steps to minimize the likelihood of a non-compete dispute: (1) before signing the non-compete: an executive can say no, ask for revisions, clarify the restriction, or at least make an informed decision; or (2) after signing, but before resigning from employment or accepting new employment: an executive can, either directly or through an attorney, try to negotiate limitations or a release from the obligations and/or find out if the new employer will indemnify and defend against a lawsuit.

It's a lot cheaper for everyone to work things out on the front end than to fight it out on the back end.

By: Poonam Khatri

Most employees are somewhat familiar with non-compete agreements as part of their employment contracts, however, did you know that your non-compete agreement may be considered an asset to the company during a change in control?

In Illinois, a non-compete agreement may be made in connection with the sale of a business. Sometimes when the value of the company depends on the goodwill commanded by its top employees, those employees may enter into an enforceable non-compete agreements with the purchaser. In effect, an employee's agreement not to compete becomes an asset for the purchaser.

Such non-competes are generally more difficult to get out of. Courts are less likely to declare a non-compete agreement made in connection with the sale of a business as invalid in order to protect the value of what the purchaser has bought. Accordingly, before you sign a non-compete, it's important that you know exactly what you are agreeing to, and what type of non-compete you are signing.

You always want to make sure that you are seen as an asset to your company, but maybe not always literally.

The short answer is yes. But, on December 1, 2011, the Illinois supreme court held that the Fourth Circuit appellate court had it wrong when it held in Sunbelt Rentals, Inc. v. Ehlers on September 23, 2009, that a court need not consider whether an employer has a business interest in need of protection when determining the enforceability of a noncompete agreement.

Reliable Fire Equipment overturned the Illinois appellate court ruling in Sunbelt Rentals, and returned to Illinois' tradition of applying a three pronged rule of reasonableness test. The test asks the following: (a) is the restriction no greater than what is required to protect the legitimate business interest of the employer; (b) does the restriction impose undue hardship on the employee; and (c) is the restriction injurious to the public.

Although the court also held that a flexible "totality of the circumstances" approach must be used to determine whether an employer has a business interest deserving of restrictive covenant protection, the ruling confirms that employers need more than just reasonable restrictions on geographic and temporal scope to have an enforceable non-compete.

At the same time, the rule imposed by the court in Reliable Fire Equipment is flexible enough where almost anything can still happen in the area of noncompetes in Illinois. As we always tell clients, "it's not whether the agreement you are about to sign is enforceable that is important, but rather you want to sign an agreement that might costs tens or hundreds of thousands to litigate." Despite the Illinois supreme court's decision in Reliable Fire Equipment, the same rule applies.

Employers are likely to be more careful about how their employment agreements are drafted and what protectable interests can be articulated. For executives, this means being more careful about what you sign and how you are compensated for undertaking a restriction on future career opportunities.

Last month, a Cook County Circuit Court judge issued a temporary restraining order barring Alliant Insurance Services, Inc. and three former Aon construction services group executives hired by Alliant from soliciting Aon Corp. employees. In a suit filed by Aon Risk Services Cos. and Aon Risk Insurance Services West, Inc. against Alliant and the former executives, Aon alleges that the three executives violated their employment agreements and poached Aon clients and at least 40 other construction services group employees using "confidential and proprietary information."

The order states that defendants are not prohibited from accepting business "from any Aon client which they did not solicit and which defendants originally brought to Aon."

While the order does not guarantee that Aon will win its case for a permanent injunction, it does exemplify the potential pit falls of breaching an executive employment agreement in Illinois.

More and more employers in Illinois have been enforcing the terms of their employment contracts, especially when the cost of lost clients exceeds the cost of litigating the issue. Too many executives believe that the only enforceable provision in their employment agreement is the one that addresses their compensation. And, even if a non-compete or confidentiality provision is not enforceable, many executives do not have the financial support of their new employer to defend a drawn out lawsuit.

Like any major business transaction, executives should plan career moves carefully. Most contracts have loop holes. And, often times, your business goals can be achieved without exposing yourself to litigation or liability. Without knowing those loop holes, you may end up sidelined in your new opportunity.

Asking for a relocation bonus or relocation reimbursement is fairly common for executives who are offered out of state employment. Although the packages come in many different forms, it is not uncommon for an employer to require that you sign an agreement to reimburse the company if you terminate employment during a specified period. Asking that you refrain from voluntarily resigning for at least 12 or 18 months does not seem unreasonable if you are receiving a large payment to support your move. But, it is also not uncommon for reimbursement agreements to include terms beyond a payment requirement, including non-compete and non-solicitation provisions.

Relocation compensation can be a deciding factor for an executive considering moving his/her family, but signing an agreement that could impede your future career prospects should be carefully considered. Even agreements that seem to be straightforward reimbursement terms can end up being costly if you are required to take alternative offers if your position is changed or eliminated.

Asking for revisions or exceptions during your initial relocation negotiations is the best time to address these issues. On your way out, your bargaining power is diminished. No matter how exciting an opportunity seems right now, the terms of these agreements will last beyond the honeymoon period.

Once you know the basics about where you want to be in your career, you have to start taking the steps to get you there. This can be especially difficult when you have signed a non-competition or non-solicitation agreement with your current employer.

If you are obligated under a noncompete or nonsolicitation agreement, your options for a career change may not be immediately apparent. Most executives are not interested in relocating their families or making an industry leap. But contracts are all about interpretation and there may be a way to accomplish your goals without any drastic life changes. Understanding the true scope of your restrictions is the first step to determining how to leave your current employer and achieve your career goals.

While it is true that most employers have become sophisticated enough to use seemingly enforceable terms for their restrictive covenants, not every non-compete agreement is in fact enforceable. And, even if your agreement is enforceable, there may be ways of negotiating a separation that allows you to pursue the career you want. Sometimes, it's as simple as asking for a release from the terms.

I still caution clients not to breach their obligations, especially if they have not contemplated the consequences of a breach. Don't go off the deep end and expose yourself to a lawsuit. Just know your options so that you don't fee handcuffed to your employer.

Certain industries (usually in the financial or technology sectors) are more concerned about proprietary information and competitive advantage than others. For companies in these industries, an enforceable non-compete agreement may not adequately protect the business' interests.

In Illinois, non-compete agreements must be reasonable in duration and scope to be enforceable. In the barest of bare bones interpretations, this means that a non-compete agreement should not be so broad as to completely exclude a professional from making a living in his/her chosen profession.

Some employers in the financial and technology sectors get around the enforceability problem by tying their non-compete terms to garden leaves. This is an especially popular trend for trading firms and software development firms. This means that you agree not to work for a competitor for a specified time period and your employer will continue to pay you during that period. Most industry employers will honor garden leaves as an industry standard.

Garden leave non-compete agreements are typically terms defined at the beginning of your employment. They often leave the actual term to the discretion of your employer at the time of termination. If you want clearer terms, the time to ask is at the offer stage.

Stock option plans can be a great benefit provided by your employer. It's a means by which you can earn a stake in your employer and benefit from the company's performance and growth. Whether the benefit is actually worth something depends a lot on the vesting schedule, on the strike price, and what happens upon termination.

Companies with stock option plans typically use an Options Agreement to identify the terms of the benefit. The problem is that most executives simply sign the agreement without reading or understanding the terms. Then, when their employment ends, they have no idea about the limitations associated with their vested options.

Most Option Agreements set very short deadlines by which you must exercise your options upon termination. If you are terminated with "cause," the deadline may even be immediate.

Even more importantly, some employers sneak restrictive covenants like non-competes or non-solicits into their Options Agreements.

I cannot stress enough how important it is to read your Options Agreement. The best time to ask for revisions or exceptions is before you sign. Do not wait until you are terminated to start asking questions and understand your obligations.

This morning, Crains Chicago Business highlighted the frequency of obscene internet activity conducted at work in its article titled "Salacious emails can be job-enders, as Tribune exec has learned." It is amazing how many smart, successful people still use their employer's technology to send personal communications. A general rule everyone should follow is: if you would be ashamed if your mother saw it, don't send it from work.

I understand that work is no longer only done from the office or work site. So, to be clear, when I say work, I mean employer issued computer, lap-top, cell phone, etc. Nearly everything done with technology today is traceable.

Which brings me to the most interesting aspect of the Crains article, the blurred line technology has created between our work and personal lives. With the perceived anonymity of the internet, people feel free to say and do things that they would never say or do in their everyday lives. The article devotes only two sentences to the Chicago area employee who was terminated after she "anonymously" derided her co-corkers on a blog. It is easier than you think to track down an anonymous blogger. Especially one who is not likely to be tech savvy.

What you say and do online in your personal life is likely to follow you into your professional life. Online anonymity is practically an oxymoron.

Although Illinois is an employment "at-will" State, most employers would prefer to limit terminations to those for "cause." There are a number of reasons for this preference. First and foremost, turnover is expensive. New employees require training that necessitates an investment of resources beyond the employee's paycheck. And, terminations without "cause" increase an employer's unemployment tax liability. As a result, many large employers use performance improvement plans ("PIPs") to help an employee get back on track, to create "cause" for termination, or to manage out an unwanted employee.

Receiving a PIP does not guarantee that you will be fired. But, a PIP indicates trouble. How you respond to that trouble could mean the difference between a paycheck and unemployment.

Our office regularly assists executives in responding to a PIP. If the criticisms are valid, we work with you to obtain clear direction from your employer so that you can get back on track and maintain your position. If the criticisms are unclear, invalid, or misstated, we work with you to determine the underlying reason for the PIP and respond in a way that insulates you.

For those of us that live in or around an urban area, getting from point A to point B on a daily basis means navigating down streets and around buildings. Hover cars have yet to be invented and evolution has yet to bring us wings. Nevertheless, when it comes to non-compete agreements, the distance is almost always as the crow flies.

Most non-compete provisions prohibit the executive from working within a specified mile radius of the place of employment. That single word "radius" can add a lot of area to the restriction.

This can be especially crucial if you signed an agreement with a 10 mile radius restriction and you accept a job that is 13 miles away by car. Many employees are under the impression that the 13 mile driving distance puts the new job beyond the restricted area. The fact is that a 13 mile drive can easily be within a 10 mile radius depending on available roadways. That can be a very expensive mistake for an employee who is sued for violating a non-compete.

I recently worked with a client that was going through an employment dispute with a former employer while also seeking new employment. The client was positive that she had never signed a non-compete or non-solicitation agreement with the former employer. As is customary in many employment disputes, my office requested this employee's personnel file. Hidden within a standard confidentiality was a broad non-solicitation agreement.

This is not an uncommon scenario. Think about it. You're starting a new job. You're excited. You know all the important details: your salary, bonus, benefits, and vacation. So you sign everything they put in front of you.

It's not until years later, when the relationship is no longer new, bright and sunny, that you start thinking about cutting ties and starting over. You're already agreed to the non-solicitation provision so what are your options? The three most important steps you need to take are:

First, you need to know your obligations. Have you signed yourself out of the market or just promised not to go after client's you services? The answers may not be obvious.

Second, determine how your obligations might limit your job search and/or what disclosures you will need to make to a new employer.

And finally, make sure you review everything your new employer asks you to sign so that you don't end up in the same position when you are ready to look for your next opportunity.

When presented with a severance agreement many executives simply sign and collect their severance pay without any thought as to how the agreement may affect their future employment opportunities. They typically think that it is better to take what they can get so that they can bridge the gap to their next endeavor. While professionals in the current market have every reason to be nervous about the time it takes to transition into a new position, accepting a severance agreement and all its terms without any review could hinder future employment or be otherwise costly in the future. Many times non-compete provisions are hidden in severance agreements or disguised as non-solicitation provisions. There are a number of issues to be concerned with before signing a severance agreement, below is a list of the top five:

1. Does the Agreement have a claw back provision that requires you to repay the severance payment if your former employer believes you breached an obligation?

2. Does the Agreement contain a non-compete or a non-solicitation provision and, if so, how broad is it?

3. Do you waive continued payments if you find new employment?

4. Do you have future obligations to your former employer?

5. Does the Agreement provide you with protections if your former employer doesn't honor all of its obligations?

Reviewing your agreement and answering these questions will allow you to make an informed decision as to whether you should sign the agreement and walk away or try to negotiate terms that protect your finances and ability to obtain future employment.

Companies often ask their executives to sign non-compete or non-solicitation agreements. Many executives think these types of agreements are no really enforceable. However, in recent years courts in Illinois have been enforcing such agreements to a much greater extent. An executive contemplating signing such an agreement should be aware that these types of agreements can effectively keep them out of the work force should they resign or be terminated.

While such behavior cannot be condones, an IBM executive in New York apparently found a way to get out of such obligations by signing the signature line designated for his employer. In the case of IBM v. Johnson, 629 F. Supp. 2d 321(S.D.N.Y. 2009), Johnson, an IBM executive was wary of signing a non-compete agreement because of a potential opportunity that never materialized. He delayed signing as long as possible, and eventually signed the IBM signature line. This caused a great deal of confusion for IBM human resources and legal department staff.

The court noted that IBM's reaction was a key factor in deciding whether the executive's signature constituted acceptance of the terms of the non-compete. IBM's response was to repeatedly request that Johnson properly execute the agreement, indicating that IBM did not believe that Johnson's signature signified acceptance of the agreement. In addition, Johnson testified that he signed in this manner to buy additional time.

The court found that it was clear that Johnson did not intend to accept the terms of the non-compete. Therefore, the court held that his signature did not create a binding contract.

It will be interesting to see how companies react to this decision and how much it will change the process of executing non-compete agreements.