A recent Northern District of Illinois decision further illustrates the potential pitfalls of utilizing sweeping restrictive covenants even with senior-level staff. Medix Staffing Solutions, Inc. v. Dumrauf, No. 17-CV6648 (N.D. Ill. Apr. 17, 2018). In Medix, the Court, applying Illinois law, granted a former high-level employee’s Rule 12(b)(6) motion to dismiss with prejudice his former employer’s action to enforce a restrictive covenant against him. Given the overbroad nature of the restrictive covenant, the Court also rejected the employer’s request to “blue pencil” it where the Court found it to be unreasonable.
The restrictive covenant at issue prohibited the former employee, for 18 months, from having virtually any involvement in any business that was in “actual competition” with his former employer or “engaged directly or indirectly in the [b]usiness of” the former employer within 50 miles of any of the former employer’s offices where he had ever worked.
In his motion to dismiss, the former employee argued that the restrictive covenant was overbroad and unreasonable, enforcing it would result in an undue hardship on him, and there was no legitimate business interest in enforcing it. In response, his former employer argued that the reasonableness of the covenant is a factual matter that should not be resolved on the pleadings, and even if it were properly resolved on the pleadings, the Court should resolve it in its favor.
The Court concluded that under existing Illinois precedent, the restrictive covenant was so overbroad and that under no set of facts would the covenant be enforceable, and, therefore, dismissal with prejudice was warranted and appropriate. Central to the Court’s dismissal was the scope of activity prohibited by the restrictive covenant, which included “directly or indirectly, own[ing], manag[ing], operat[ing], control[ing], be[ing] employed by, participat[ing] in or be[ing] connected in any manner with the ownership, management, operation or control of,” any company in actual competition with the employer or any company directly or indirectly engaged in the employer’s field. That language, according to the Court, unambiguously prohibited the former employee from working for any company in the same business as the employer in any position whatsoever, including positions entirely unrelated to his past employment at the employer.
Importantly, even the allegation that the former employee held a high-level position with the employer that resulted in him being exposed to the employer’s confidential strategic business information was not sufficient to support a finding that the covenant was reasonable. The Court held that no matter how high level an employee may be, there is no protectable business interest that justifies such a limitless restriction as the one the employer sought to enforce.
Moreover, given the sweeping nature of the restrictive covenant, the Court declined the employer’s request to “blue pencil” it, explaining that Illinois law requires courts not to rewrite the activity scope of a restrictive covenant when the scope as drafted originally is so broad as to be “patently unfair.” The Court explained that such a remedy is available only to redefine the geographic scope of a restrictive covenant where the activity scope is otherwise reasonable.
Given the trend that we have observed of courts striking down broad, sweeping restrictive covenants, we have previously cautioned employers to craft restrictive covenants with care and in conjunction with legal counsel, in addition to relying on covenants only when necessary to protect a specific, legitimate business interest. (See “Illinois Attorney General Targets Customer Service Worker Non-Competition Provisions”) This case, where the Court struck down an indiscriminate and generic restrictive covenant at the earliest possible stage of litigation, emphasizes the risk of using such restrictive covenants even with high-level employees that have access to sensitive business information.