Tolling clauses in non-compete agreements extend the period of noncompetition by a period of time usually equal to the time an employee is in violation. Appellate courts in some states, including Illinois and Massachusetts, have affirmed injunctions based on contractual extension clauses. For example, in Prairie Eye Center v. Butler, No. 4-01-0005 (Ill. Ct. App. April 16, 2002), the Appellate Court for the Fourth District of Illinois upheld a permanent injunction against an ophthalmologist, barring him from practicing medicine for a two-year term from the date of trial. The non-compete in that case included the following:
In the event any violation hereunder is determined, the period of noncompetition shall be extended by a period of time equal to that period beginning when such violation commenced and ending when the activities constituting such violation shall have terminated.
Massachusetts courts have enforced similar provisions. But the use of extension clauses and tolling provisions is far from universal, even ten years after Prairie Eye Center – begging the question: Why?
Courts in other states have invalidated non-competes based on extension clauses. For example in Wisconsin, which does not allow blue-penciling, the Court of Appeals held that an extension clause rendered a non-compete unenforceable, in part because the employee would not be able to determine from the face of the agreement how long the extension would last. H & R Block Eastern Enterprises, Inc. v. Swenson, No. 2006AP1210 (Wisc. Ct. App. Dec. 20, 2007). Similarly, the Georgia Court of Appeals (under prior Georgia law) held that a non-compete was unenforceable because the tolling provision potentially extended the length of the restrictive covenant “perpetually.” ALW Marketing Corp. v. Hill, No. A92A0663 (Ga. Ct. App. July 9, 1992).
If employers feel strongly enough to require a non-compete in the first place, presumably they would want the contractual flexibility and additional protection afforded by tolling provisions. A tolling provision would be especially useful if, for example, a former employee were to secretly compete for a significant time before being discovered by her previous employer. But secret competition is fairly rare. In the majority of situations, companies have a good idea what their former employees are doing. They want to stop potential harm, not wait in the weeds and then cry, “Gotcha!”
Attorneys drafting and reviewing non-compete agreements for their corporate clients should carefully balance the benefits of a tolling provision against the risks of adding any unnecessary complexity that might cause a judge to invalidate the entire agreement (especially in states which do not allow blue-penciling or judicial modification.) In those states that would not find tolling provisions to be offensive, their use can provide arguments to the court or grounds for settlement terms that might not otherwise be available.