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Illinois Should Adopt Its Northern Neighbor’s (Wisconsin) Law For Restrictive Covenants and Non-Competes

When litigating Illinois non-compete and restrictive covenant disputes, my experience is that the biggest factor is not the law or even the facts, but instead the assigned judge.  This is unfortunate because there is a great deal of unpredictability.  There is so much discretion afforded to a judge in determining the enforceability of non-compete agreement, including whether to enter preliminary relief (i.e, a preliminary injunction or a temporary restraining order).  This uncertainty is not fair for employees (who want to know if they can stay or take a new job) or employers (who want to know that their agreements will be enforced)

Unlike Illinois, Wisconsin has a very strict law, Wis. Stat. § 103.465, governing non-compete agreements because of its public policy of encouraging worker mobility, including the rights of people to switch jobs. Wisconsin law is particularly unique in that, by statute, if any portion of the restrictive covenant is found invalid, the entire agreement is invalid. In other words, Wisconsin law throws out the baby with the bathwater and provides a strong deterrent to prevent employers from drafting overly broad non-compete agreements.

Wis. Stat. § 103.465 provides that:

Restrictive covenants in employment contracts. A covenant by an assistant, servant or agent not to compete with his or her employer or principal during the term of the employment or agency, or after the termination of that employment or agency, within a specified territory and during a specified time is lawful and enforceable only if the restrictions imposed are reasonably necessary for the protection of the employer or principal. Any covenant, described in this section, imposing an unreasonable restraint is illegal, void and unenforceable even as to any part of the covenant or performance that would be a reasonable restraint. (Emphasis Added)

This means that Wisconsin employers are required to draft their non-competes properly or they will not be enforced at all.   Again, you thrown the baby (the enforceable part of the restriction) out with the bathwater (the unenforceable part).   Unlike in Wisconsin, in Illinois, judges can (under certain circumstances) modify or narrow/blue pencil a non-compete or restrictive covenant.

In Tradesman Int’l, Inc. v. Black, 724 F.3d 1004, 1017–18 (7th Cir. 2013), Judge Hamilton of the Seventh Circuit wrote a concurring opinion explaining the important public policy differences between those states that allow non-compete modifications and those that do not and specifically compared Illinois and Wisconsin in that regard. Judge Hamilton explained why throwing out an entire covenant (which is mandated by statute in Wisconsin) disincentivizes the drafting of overly broad non-competes:

“The basic problem is that if courts are willing to rewrite overly broad covenants for the sake of being reasonable, employers have a powerful incentive to draft oppressive, overly broad covenants. In the many cases that will never get to court, or where employees will be deterred even from trying to leave, the employer benefits from the in terrorem effects of the oppressive and overly broad covenants. Then, in the few cases that go to court, the employer can retreat to a reasonable position without suffering any penalty or disadvantage for its oppressive drafting. This potential abuse may well persuade state courts to refuse to honor parties’ contractual choices of other states’ laws, particularly where the forum state’s public policy is to protect employees from overly broad covenants.”  724 F.3d 1004 at 1018.

The public policy behind Wis. Stat. § 103.465 is consistent with commentator recommendations that “that states abandon the practice of allowing judges to modify non-compete agreements.”[1]   The reason for this is that allowing judges to modify encourages overly broad non-completes.   In 2016, the White House issued a report entitled, Non-Compete Reform: A Policymaker’s Guide to State Policies, pointing out that Wisconsin is one of only 5 states that prohibits non-compete modifications. It pointed out that this provides “the strongest incentives to write contract language narrowly and carefully.” Id. at p. 8.[2]

 

To be sure, many Illinois judges frown upon extensive blue penciling.   See generally, Telxon Corp. v. Hoffman, 720 F. Supp. 657, 666 (N.D. Ill. 1989)(declining in its discretion to blue pencil in part because “we also hope to encourage employers to write contracts more narrowly tailored to serve their own individual needs and, if necessary, to vary those documents to restrict only the activities of particular employees.”); Triumph Packaging Group v. Ward, 834 F. Supp. 2d 796, 815 (N.D. Ill. 2011)(blue penciling inappropriate “where the anti-compete clause is significantly overbroad in several ways, is not appropriate” because “modifying an extremely overbroad non-compete agreement could provide a disincentive for employers and employees to draft narrow and precise agreements.”); Critical Care Sys., Inc. v. Heuer, 2014 IL App (2d) 130745-U, ¶ 34 (“Plaintiffs urge this court to blue pencil the covenant to render it enforceable; however, we decline to do so because that would be an impermissible rewriting of the covenant.”); Saban v. Caremark Rx, L.L.C., 780 F. Supp. 2d 700, 733 (N.D. Ill. 2011)(“To partially enforce the covenant now will only embolden Caremark to continue using an unreasonably broad covenant, to be tailored by a court only when an employee with the resources to challenge it does so”).  Unfortunately, much of this depends on the judge that is assigned to your case.

 

As such, like Wisconsin, Illinois should adopt legislation that invalidates an entire restrictive covenant in the event that any portion of it is found unenforceable.  This would encourage employers to draft restrictive covenants that are reasonably and narrowly tailored to protect their interests.

[1] https://www.brookings.edu/wp-content/uploads/2018/02/es_2272018_reforming_noncompetes_support_workers_marx_policy_proposal.pdf

[2] https://obamawhitehouse.archives.gov/sites/default/files/competition/state-by-statenoncompetesexplainer_unembargoedfinal.pdf

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