Business Tip: Include extension clauses in your restrictive covenant agreements to ensure that the time of the restrictions will not begin to run until the employee has stopped violating the restrictions.
In order to make sure that an employer gets the full benefit of the restrictive time period in its non-competition, non-disclosure or non-solicitation agreements, employers in Illinois should make sure that such agreements contain “extension clauses.” Extension clauses will extend the time period or modify the start date of the restrictive covenant in the event that an employer does not discover the former employee’s breach until near the end of the restrictive time period or the employee continues to violate the restriction during litigation.
The Illinois Appellate Court for the First District addressed the issue of extension clauses in Citadel Investment Group, LLC v. Teza Technologies LLC, et al. In that case, Citadel sought to enforce a non-competition agreement against two former employees that prohibited the employees from competing against Citadel for nine months following the end of their employment. Several months into the nine-month non-competition period, Citadel discovered that its former employees were competing against it and filed an emergency motion for a preliminary injunction. After a preliminary injunction hearing, the employees were enjoined from engaging in any competitive activity as defined by the non-competition agreements from the date of the order and ending at the termination of the nine-month restrictive time period set forth in the non¬competition agreements, which deprived the Citadel of nine full months without competition. In its opinion, the trial court noted that the non¬competition agreement did not have a clause extending the restriction period based on a violation of its terms.
On appeal, Citadel argued that its former employees should have been enjoined for the full nine-month restrictive time period as contemplated under the agreement starting from the date of the injunction order, despite the lack of an extension clause in the non-competition agreements. However, in upholding the trial court, the First District Appellate Court recognized that under the plain language of Citadel’s restrictive covenants, the restrictions terminated by their own terms nine months after termination of employment. Further, the Appellate Court recognized that the agreements did not contain any provision for allowing for an extension or modification of the commencement date of the restriction.
In light of this decision, which is in accord with decisions from other districts of the Illinois Appellate Courts, employers in Illinois should review the non-competition or non-solicitation agreements that they currently use and that they have used in the past to see if they contain extension clauses. If any of these agreements do not contain extension clauses, Illinois employers should consider revising these agreements to include extension clauses to ensure that the employer gets the full benefit of the restrictive time period in these agreements.