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Chicago Daily Law Bulletin - Two years of continuous employment rule not as

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Chicago Daily Law Bulletin - Two years of continuous employment rule not as

  1. 1. Chicago Daily Law Bulletin - Two years of continuous employment rule not as solid as it may seem[1/20/2016 5:32:59 PM] January 20, 2016 Print friendly page Commercial Litigation By Paul B. Porvaznik Paul B. Porvaznik is an attorney at Davis, McGrath LLC and practices primarily in the areas of commercial litigation, landlord-tenant law, mechanic’s liens and post-judgment enforcement. Two years of continuous employment rule not as solid as it may seem A federal court in Illinois recently waded into the “what’s the length of continuous employment to support a restrictive covenant?” morass. Ever since an Illinois Appellate Court ruled in Fifield v. Premier Dealer Services Inc., 2013 IL App (1st) 120327, that two years of sustained employment is required for an employer to enforce a restrictive covenant, Illinois courts at different levels have given the two-year rule varying amounts of deference. Some follow the rule to the letter, applying it rigidly, while others adopt a fluid, fact-based test that looks at more than just a cold chronology. The case of Traffic Tech v. Kreiter, 2015 WL 9259544 (N.D. Ill. 2015) falls squarely in the latter flexible approach camp. There, the U.S. District Court for the Northern District applied a totality of circumstances test to a trucking firm’s non-solicitation term in a lawsuit against a departed employee who joined an industry rival. The company sued when the ex-employee resigned nine months after his hire date and began working for a competitor. The former employee previously signed an employment contract that contained an 18-month non-solicitation term. In its suit, the plaintiff sought to prevent the employee from using the plaintiff’s trade secrets and soliciting the plaintiff’s client in the employee’s current position. The employee moved to dismiss the action on the basis that the restrictive covenants lacked consideration since he never worked a full two years for the plaintiff and the non-solicitation clause had no geographic limit (it had a nationwide reach). Denying the motion to dismiss, the court tried to square divergent cases reaching different results on the level of consideration required for an employer to enforce a non- Serving the city's law profession since 1854 Home Courts ▼ Calendar Public Notices 40 Under 40
  2. 2. Chicago Daily Law Bulletin - Two years of continuous employment rule not as solid as it may seem[1/20/2016 5:32:59 PM] solicitation term against a departing worker. In Illinois, continued employment for a “substantial period” is generally needed to establish that a contractual restrictive covenant is supported by consideration. While some courts like Fifield have categorically found that anything less than two years of doesn’t qualify as a substantial period of time, Kreiter predicted that the Illinois Supreme Court would adopt a less rigid and more fact-specific test. A key factor that gave the court pause on the consideration question was that the plaintiff paid the defendant a $250,000 signing bonus (equal to a year’s salary) at the start of his employment. The bonus, the defendant’s quick exit and other unresolved fact questions led the court to deny the motion to dismiss. Next, the court focused on whether the plaintiff’s breach of fiduciary duty claim was pre-empted by the Illinois Trade Secrets Act. Part of it was; part of it wasn’t. The plaintiff alleged that the defendant, a management-level employee, owed the plaintiff a fiduciary duty not to tamper with the plaintiff’s business. The Illinois Trade Secrets Act displaces conflicting common-law civil claims that essentially mirror the act’s claim pleaded in the same complaint. But the act does not pre-empt contractual remedies that are not based on trade secret misappropriation. When determining whether a given claim is pre-empted by the act, the court looks at whether the non-ITSA claim seeks a remedy for conduct that goes beyond misappropriation. The court found that the plaintiff’s breach-of-fiduciary duty claim was bottomed on the allegations that the defendant violated his duty of loyalty to the plaintiff by trying to divert customers to a competitor (the defendant’s current company) and by bad- mouthing the plaintiff to its customers. These pleaded facts were enough to survive a motion to dismiss and were factually far enough removed from the trade secret claim to escape ITSA preemption. As a result, the court denied the defendant’s motion to dismiss the plaintiff’s breach of fiduciary duty claim. Afterwords While it’s a simple motion to dismiss order (meaning: the case is still going and hasn’t been decided on its merits), the Kreiter case presents a useful summary of some signature issues that recur in the commercial litigation and employment law arenas. Kreiter is representative of a line of cases where a court refuses to apply a rote, paint-by-the-numbers approach to deciding whether a restrictive covenant is enforceable. Employer-side practitioners in Illinois can add this case to the anti-two-year rule case canon when trying to enforce a non-solication or non- compete term. Kreiter and cases like it make clear that the more flexible a court’s analysis is, the better chance an employer has in enforcing a restrictive covenant against an inadequate consideration argument. Kreiter’s other key holding is that even where a non-solicitation You May Also Like Latest listings from ARDC: Wires crossed, but no misconduct High court rules against Florida death penalty Kirkland team shelters $1.4B in bankruptcy duel Are police shielded by union contracts? Alabama sues federal government over refugee program Charged protesters claim rights under 1855 treaty Keystone pipeline sponsors file suit, challenge Obama rejection At top court, man argues for himself Paralegals - Paralegal Legal Administrators - Receptionis Assistant Attorneys - Attorney Legal Secretaries - General office Legal Secretaries - Family Law Se Law/Docket Clerks - Project Assist
  3. 3. Chicago Daily Law Bulletin - Two years of continuous employment rule not as solid as it may seem[1/20/2016 5:32:59 PM] Advanced Search Awards Classifieds Contact Us Email Opt Out 40 Under 40 Jobs Law Bulletin Anniversary Law Day Logon Help Newsstands Password Help RSS Subscribe Subscriber Terms Privacy Policy Site Map Resources Law Bulletin Publishing Co AccessPlus JuraLaw Sullivan's Law Directory CourtBriefs Jury Verdict New Suits Law Bulletin Seminars Products ©2016 by Law Bulletin Publishing Company. Content on this site is protected by the copyright laws of the United States. The copyright laws prohibit any copying, redistributing, or retransmitting of any copyright-protected material. The content is NOT WARRANTED as to quality, accuracy or completeness, but is believed to be accurate at the time of compilation. Websites for other organizations are referenced at this site; however, the Law Bulletin does not endorse or imply endorsement as to the content of these websites. By using this site you agree to the Terms, Conditions and Disclaimer. Law Bulletin Publishing Company values its customers and has a Privacy Policy for users of this website. lacks a geographic limit, it can still be enforceable if there are other factors showing the term’s reasonableness under a totality of circumstances test. Send to friend Click here to enter an extra message... Legal Administrators - Legal Assis Send
  4. 4. Chicago Daily Law Bulletin - Two years of continuous employment rule not as solid as it may seem[1/20/2016 5:32:59 PM]