A recent Illinois Appellate Court decision serves as a good reminder that when it comes to restrictive covenants, one size does not fit all. A consistent theme in recent court decisions has been that “form” employment agreements with overly broad restrictions not anchored to the employee’s job responsibilities and related to the employer’s protectable interests will not be enforced.

This approach was recently illustrated in AssuredPartners, a case in which the Illinois Appellate Court applied the “rule of reasonableness” analysis and found that the restrictive covenants in a senior vice president’s senior management agreement were unenforceable as a matter of law.

Illinois courts examine the enforceability of restrictive covenants subject to a “rule of reasonableness” analysis. Under this analysis, a restraint is only likely to be upheld if four criteria are met:

  1. the restraint is no greater than necessary to protect a legitimate business interest of the employer;
  2. the restraint does not impose undue hardship on the employee;
  3. the restraint does not injure the public; and
  4. and the restraint has reasonable activity, time and geographic restrictions.

Factors relevant to evaluating the legitimate business interest to be protected by the restraint include, but are not limited to, the near-permanence of customer relationships and the employee’s acquisition of confidential information during employment. An employer has a better chance of enforcing a restrictive covenant when the restriction is specifically tailored to that employee’s position and the legitimate business interests of the employer.

In AssuredPartners, the defendant worked as a wholesale broker selling lawyers’ professional liability insurance by acting as an intermediary between a retail broker and an insurance carrier. In performing his job, the defendant identified a carrier that was willing to provide the specialized coverage the retail broker’s client wanted and then would negotiate the premium and policy wording with the insurance carrier. The defendant had worked in this capacity for a number of years, including before becoming employed by the plaintiffs. And in his years in the field, the defendant built a substantial book of wholesale lawyers’ professional liability insurance business.

In 2006, the defendant employee entered into an employment agreement with ProAccess that contained certain restrictive covenants. This employment agreement included a carve-out for some of the employee’s pre-existing relationships. In 2011, AssuredPartners acquired ProAccess, and the defendant employee entered into a senior management agreement. Under the terms of the senior management agreement, the defendant would be employed for a term of four years and guaranteed a base salary with the opportunity to earn a performance bonus at later date. The defendant employee’s senior management agreement contained restrictions on post-employment competition and solicitation.

In 2013, the defendant resigned from AssuredPartners and began competing against it. Among other things, after his resignation, he contacted his former customers. AssuredPartners filed suit against him to enforce the restrictions in his senior management agreement. The trial court found that the noncompetition and nonsolicitation restrictions in the employee’s agreement were unreasonable and unenforceable. AssuredPartners appealed.

The appellate court found the noncompetition provision to be overly broad and unenforceable as it prohibited the defendant from engaging in any “portion of the Restricted Business that relates to professional liability Insurance Products or professional liability Related Services” anywhere in the United States or its territories. The appellate court noted that the noncompetition restriction was not limited to the specific kind of professional liability insurance practice the employee had developed during his employment — lawyers professional liability insurance. Rather, the noncompetition provision restricted the defendant employee from working with all types of professional liability insurance. Further, the appellate court noted that AssuredPartners did not have a legitimate protectable interest in a business relationship with retail brokers, vendors or LPLI clients with which it did not do business.

The nonsolicitation provision prohibited the defendant employee from directly or indirectly causing any “Potential Target, customer, supplier, licensee or other business relation of” plaintiffs and their subsidiaries to cease doing business with them. The appellate court found the nonsolicitation provision to be overly broad because it extended to any customer (potential or otherwise) regardless of whether the defendant employee had contact with them, including customers that became customers after he left his employment. In short, the restriction prevented the defendant employee from working with any customers, suppliers and other business entities with which he never had any contact.

The employer could have imposed noncompetition and nonsolicitation provisions on its employee that would have been enforceable had the employer not overreached. Employers frequently believe they are better off imposing broader restrictions. The view is that courts may narrow restrictions to the extent that they are overly broad and make an employee subject to such restrictions less attractive to competitors. However, AssuredPartners shows the dangers of overly broad restrictions. Employers should have the restrictions in the employment agreements of their key executives and salespeople evaluated to see whether those restrictions are likely to be enforceable. If the review reveals that these restrictions are overly broad, there are steps the employer may be able to take to make them enforceable.