Can an Employer Enforce a Non-Compete When It Terminates the Employee Without Cause?

The enforceability of non-compete agreements against former employees in Illinois has garnered much attention. In 2022, the Illinois Freedom to Work Act, 820 ILCS 90/1, et seq., went into effect. The Freedom to Work Act, among other things, prohibits non-compete agreements between an employer and any employee who earns $75,000 or less per year. The Freedom to Work Act also prohibits non-solicitation agreements between an employer and any employee who earns $45,000 or less annually. 820 ILCS 90/7.

The Freedom to Work Act, however, leaves several important questions about the enforceability and limitations of non-compete agreements unanswered. This article addresses one of those questions, specifically: May an employer successfully enforce a non-compete agreement against a former employee if the employee was not terminated "for cause"? 

The answer, as frustrating as it is for employers and employees alike, is "it depends." In addition, it depends on the language of the non-compete agreement and a host of other case-specific facts. In the absence of a bright line rule, employers and employees would do well to peer through the lens that Illinois courts use when analyzing such matters. In the process, employers and employees can gain some valuable insights.

Background

When it comes to non-compete agreements, Illinois courts start their analysis with the general proposition that non-compete restrictions deserve "close scrutiny" because courts favor fair competition and disfavor restraints on trade and competition. MBL (USA) Corp. v. Diekman, 112 Ill. App. 3d 229, 237 (1st Dist. 1983). Given the courts' preference for competition over restraint, any ambiguities contained in the non-compete agreement are resolved against the restriction. Lempa v. Finkel, 278 Ill. App. 3d 417, 427-28 (2nd Dist. 1996). 

Courts then analyze the specific language of the non-compete and the facts related to the old and new employment. From a high level, Illinois courts ask if the non-compete is “reasonable and necessary to protect a legitimate business interest of the employer.” Cambridge Eng'g, Inc. v. Mercury Partners, 378 Ill. App. 3d 437, 447 (1st 2007). In answering that question, courts take into consideration a number of factors, including the following: 

1. The hardship caused to the employee, 
2. The effect upon the general public, and 
3. The scope (in duration, geography, and specific activity) of the restrictions. Id. 

It should be apparent that each of these factors is very fact-specific. As a result, it is very difficult for courts to craft a bright line rule. Regardless, employers bear the burden of demonstrating that the full extent of the non-compete is necessary for protecting its interests. 

Bishop 

With that background in mind, we turn to an important case that addresses our specific question. 

In Bishop v. Lakeland Animal Hospital, a veterinary doctor was fired from his place of employment and brought suit seeking to have the non-compete clause within his contract declared unenforceable. Bishop v. Lakeland Animal Hosp., P.C., 268 Ill. App. 3d 114, 115 (2nd Dist. 1994). 

The Bishop court held that because the veterinarian was fired without cause, the non-compete clause was unenforceable. Id. The court reasoned that in order for a non-compete clause to be enforceable, a company must show “(1) an employee was terminated for cause or by their own accord; (2) the non-compete clause must be reasonable; and (3) the clause must have as its purpose the protection of a business interest on the part of the employer.” Id at. 118. This further means that a non-compete clause will not be enforceable if it is only used to stifle completion. Id. 

On its face, the Bishop opinion appears to establish a bright line rule, viz. non-compete agreements are only enforceable against a former employee who is either terminated for cause or voluntarily resigns. Unfortunately, what appears to be a bright line rule has been narrowed by a subsequent opinion.

After Bishop

A separate Illinois appellate court, the Fourth District, later construed the Bishop case narrowly. In Am. Pest Control, Inc. v. Rakers, 2012 WL 7050434 ¶ 15 (4th Dist. 2012), the Fourth District argued that the Bishop holding did not create a bright line rule and the outcome was determined in favor of the employee because the Bishop court found some ambiguity in the term "for any cause". That ambiguity was resolved in favor of the employee.

It should be noted that the Raker's case is an unpublished opinion, which does have some significance to this analysis. Regardless, the answer to the subject question will remain murky until the Illinois Supreme Court or legislature squarely addresses it.

Employers and Employees Proceed with Caution

Owning and controlling a business is challenging on the best of days. Having your employment terminated and wondering if a new job prospect will force you into litigation with your former employer is a very scary proposition. 

This work merely scratches the surface of issues related to non-compete agreements in Illinois. Hopefully, it provides a helpful framework to analyze the issue for both the employer and employee.

If you would like more information about non-compete agreements and how to protect yourself or your business, please contact attorney Brian Massimino at (847) 736-1262 or bmassimino@lavellelaw.com.