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US – is your non-compete clause too broad? An Illinois court offers guidance

Written by
FordHarrison LLP, nationwide U.S. law firm with a singular focus on HR law.
This article discusses a recent decision from an Illinois court that held that wording very frequently used in employee non-compete clauses is too broad to be reasonable and assesses its potential impact on employers.

Executive Summary

When drafting restrictive covenants, employers face a common dilemma about the scope of activities to be restrained. On the one hand, highly focused non-compete language tends to be more enforceable but might not protect the company’s legitimate business interests. On the other, a one-size-fits-all blanket prohibition is more comprehensive but runs the risk it will be unreasonably broad and unenforceable. A recent decision by a federal court in Illinois, Medix Staffing Solutions, Inc. v. Dumrauf (N.D. Ill. Apr. 17, 2018), draws a bright line regarding when a non-compete clause is overbroad as a matter of law. Notably, the court rejected language used frequently in non-compete covenants throughout the country, finding the language so all-encompassing as to be entirely unreasonable.

Medix’s Non-Compete: A Prime Example of Overbroad Language

The court found Medix’s non-compete clause excessively broad on its face because it restricted Dumrauf, a former Medix employee, from taking any position with another company that engages in the same business as Medix. The familiar language at issue barred Dumrauf from working (within 50 miles of his former office) for ‘any business’ that ‘offers a product or services in actual competition with Medix’ or which may be engaged ‘in the Business of Medix.’

The court found this language unworkable because it failed to consider what services Dumrauf actually performed for Medix or whether he or his new company truly compete with Medix. Rather, the clause barred Dumrauf from working for any company that merely works in the same fields as Medix, regardless of whether that company is an actual Medix competitor.

Though the court did not accept the common argument that Medix’s clause was so broad Dumrauf could not work as a janitor for a competitor, it found the clause impermissibly prevented him ‘from taking any number of more plausible roles at another industry player, no matter how far removed from actual competition with Medix.’ The court held this language barred Dumrauf from working in any capacity for any company in the same business as Medix, which is a restraint on free competition, and ‘[t]here is no factual scenario under which it would be reasonable.’

Can the agreement stand without the unreasonable elements?

The court rejected Medix’s argument that the scope of the restraints should be judicially modified (that is, the part of the non-compete judged unreasonable should be struck out by the court), holding such a limitless restriction must be completely re-written. The court was clear in its rejection of Medix’s request: where the clause is ‘a broad ban on competition,’ and where ‘Medix had the opportunity to draft an appropriate restrictive covenant [but] failed to, [they] now must live with their decision not to do so.’

Employers’ bottom line

Though it does not bind courts or employers outside of Illinois, the Medix decision offers sound guidance on a basic but important trap to avoid when drafting restrictive covenants. The temporal duration, geographic area, and most importantly, the scope and purpose of the non-compete agreement must be reasonable under the circumstances and narrowly tailored to protect each company’s specific business interests. If the scope of the limitation can be viewed as patently unfair to the employee, an action to enforce the clause may be problematic. A review of your company’s existing non-compete agreements, with an eye toward reasonableness, may be in order.