The difficult economic times that many companies have faced over the last several years has resulted in numerous layoffs and terminations. A question often arises about whether a covenant not to compete is enforceable if an employee is terminated without cause.
The leading case in Illinois addressing the enforceability issue is the 1994 case of Bishop v. Lakeland Animal Hospital, P.C. In Bishop it was undisputed that Mary L. Bishop (“Bishop”) was terminated without cause. The language of Bishop’s covenant not to compete, however, was ambiguous regarding whether it could be enforced upon such a termination. When Bishop filed suit for breach of contract, asserting her covenant not to compete was unenforceable, the court held the implied covenant of good faith and fair dealing inherent in every contract precluded enforcement of the non-compete clause when the employer terminated an employee without cause. Thus, the court stated: “in order for a non-competition clause to be enforceable . . . the employee must have been terminated for cause or by his own accord.”
Given that the Bishop case dealt with an ambiguous covenant not to compete, the question arises whether the court’s reasoning would apply if the ambiguity was removed and the covenant not to compete clearly stated it was to be enforced even if the employee was terminated without cause. While no state court has addressed such an issue directly, the United States District Court for the Northern District of Illinois offered some guidance with respect thereto when it discussed the Bishop case in the 2000 case of Francorp, Inc. v. Siebert.
In Francorp, Francorp, Inc. (“Francorp”) sought to enforce a covenant not to compete included in the employment agreement executed by its former President, Mark Siebert, who started a competing business after leaving Francorp. In finding the covenant not to compete to be unenforceable, the court stated the Bishop case “takes the rule farther, holding that an employer cannot enforce a non-competition agreement against an employee who has been dismissed without cause, even if the employment contract authorizes such termination, because firing without cause breaches the implied covenant of good faith inherent in every contract.”
Until such time as the Illinois Supreme Court addresses the enforceability of an unambiguous covenant not to compete which states it will be enforceable upon a termination without cause, Illinois courts will likely follow the rulings in Bishop and Siebert finding covenants not to compete to be unenforceable if an employee is terminated without cause, even if the employee’s employment agreement unambiguously provides for enforceability in the event of termination without cause.
The law relating to competition is constantly changing. If you or your company has a question regarding employment contracts and covenants not to compete, please contact the member of our firm with whom you regularly work.