In the recent Illinois case of The Agency, Inc. v. Grove, a court set forth the requirements for the enforceability of a covenant not to compete against a former employee. Plaintiff, The Agency, Inc. (“Agency”), was a staffing agency that previously employed defendant, Janet Grove (“Grove”). Agency filed suit against Grove, alleging that Grove appropriated client profiles maintained by Agency and, thus, violated the terms of a covenant not to compete.
The court noted that covenants not to compete are restraints on trade and, therefore, are strictly construed by courts to ensure that their intended effect is not to prevent competition. Courts will not enforce a covenant not to compete unless the terms are reasonable and the agreement is necessary to protect an employer’s legitimate business interests. A legitimate business interest exists where either: (1) because of the nature of the business, the customer relationships with the employer are near-permanent and the employee would not have had contact with the customers absent the employee’s employment; or (2) the employee gained confidential information through his or her employment that he or she attempted to use for his or her own benefit.
The court found that the client profiles maintained by Agency constituted confidential information. The client profiles contained client identities, client business cycles, expiration dates for contracts, and personnel preferences and were maintained in a computer network accessible only by password. Furthermore, the information was not available from business directories.
The court also held that the covenant not to compete was reasonable. In the covenant not to compete, Grove acknowledged that she would have access to confidential information, and she agreed that, while employed at Agency or afterwards, she would not make any independent use of or disclose the confidential information to any person. The court noted that such confidential information would be a substantial asset in an attempt to deprive Agency of staffing opportunities and, therefore, the restrictions concerning the usage of such information were reasonable.
In addition, the court concluded that the covenant not to compete was necessary to protect Agency’s legitimate business interests because Grove attempted to use the client profile information for her own benefit. While Grove was still employed with Agency, Grove prepared a separate document entitled “Client List” which contained information from the client profiles and retained the list after her termination. Grove also admitted she attempted to solicit the business of Agency’s customers for her own benefit while still employed with Agency. Since Agency established all of the requisite elements for the enforcement of the covenant not to compete, the court upheld the covenant.
The Agency case sets forth the factors that courts will consider when determining the enforceability of a covenant not to compete. If you need assistance in drafting a covenant not to compete or have any questions concerning the enforceability of a covenant not to compete, please contact a member of the firm.