The Illinois AG’s Suit Against Jimmy John’s On Non-Competes – What It Means For Employers
The Illinois Attorney General filed suit last week against Jimmy John’s for its use of non-competes with low-wage workers. This suit – which appears to be the first of its kind – alleges Jimmy John’s use of non-competes violates Illinois law and hurts Illinois residents and businesses by limiting the pool of available workers and artificially suppressing wages.
The Jimmy John’s non-compete made headlines last year after a current employee and a former employee together filed a class action seeking to invalidate that provision. Their case was dismissed on standing grounds. The court did not reach the question of whether the non-compete was valid under Illinois law.
Federal Trade Secret Protection Has Now Become Reality
Today, President Obama signed the Defend Trade Secrets Act of 2016 (“DTSA”) into law, bringing trade secrets alongside trademarks, copyrights and patents as intellectual property rights protected under federal law.
Every employer and owner of trade secrets seeking to protect their rights needs to become versed in this new enforcement scheme. While the DTSA does not displace state trade secrets laws, the DTSA permits an employer to bring claims asserting trade secret misappropriation in federal court where the alleged trade secret is used in or intended for use in interstate or international commerce.
White House Report On Non-Competes – Are The Feds Taking Over Employee Competition Law?
What is up with the federal government’s new-found interest in non-competes and other legal issues that arise when employees move between competitors?
First the Treasury Department issued a report on the impact of non-compete agreements on the economy. Then Congress passed the Defense of Trade Secrets Act. And now, just last week, the White House issued its own report on non-compete agreements.
What do these federal initiatives mean? And how do these changes effect employers and employees?
Non-Compete + Breach Does Not Always = TRO
The newly decided Bridgeview Bank Group v. Meyer reminds businesses and their attorneys that there is never a guarantee of getting a TRO, even where your former employee has a non-compete and you have evidence of breach.
The bank must have felt well positioned. Defendant worked for the bank for 2 years as SVP for Small Business Association lending. Upon his exit from the bank, he signed a severance agreement reaffirming a 1-year no-solicit and a non-disclosure of confidential information provision.
The Uncertainty In Illinois Continues
The battle over what constitutes adequate consideration to support a post-employment non-solicit or non-compete continues unabated in Illinois. On one side are the First and Second District Illinois Appellate Courts that have staked out the position that such restrictions must be supported by at least two years of employment. On the other side, as previously discussed (see our February 2015 and August 2014 posts), are the judges of the Federal District Court for the Northern District of Illinois, who have strongly disagreed. The newest chapter in this saga was authored by Judge Dow—another federal court judge–lining up against the state appellate court decisions.
How Not to Leave a Job
Many of the cases discussed in this blog deal with contractual post-employment restrictions that employees may have, such as non-competition and non-solicitation agreements. It can be easy to forget, however, that the problems in hiring a competitor’s employees are not limited to just these contractual issues and that claims for violation of various common law torts and statutory obligations may also occur. A recent decision from the federal district court for the Northern District of Illinois provides an almost textbook example of just about everything that can go wrong when an employer hires a competitor’s employees even where the employees are not subject to post-employment contractual restrictions.
The Seventh Circuit Decries The Lack Of Predictability Regarding Enforcement Of Restrictive Covenants Under Illinois Law
When clients expressed frustration regarding the uncertainty that exists regarding whether a particular post-employment restrictive covenant is enforceable under Illinois law, we could only tell them we understood how they felt. Now, we can tell clients that at least one jurist – Judge Frank Easterbrook of the U.S. Court of Appeals for the Seventh Circuit — shares their (and our) frustration.
In Instant Technology, LLC v. DeFazio, Case Nos. 14-2132 & 14-2243 (7th Cir. July 14, 2015), Judge Easterbrook authored the opinion of a unanimous Seventh Circuit panel affirming a judgment in favor of defendants. Defendants had admittedly violated restrictive covenants contained in their contracts with plaintiff, their former employer, but the Instant Technology Court held those covenants invalid and unenforceable under Illinois law.
Williams-Sonoma Obtains Mixed Results After Theft Of Trade Secrets As Alleged Inevitable Disclosure Is Not Enough To Restrain Employment With Rival
On June 18, 2015, Williams-Sonoma, Inc., one of the largest U.S home retailers and e-commerce companies with well-known brands such as Pottery Barn, obtained a preliminary injunction from a federal court in Tennessee against its former Vice President of Transportation, Engineering and Planning. Williams-Sonoma Direct, Inc. v. Arhaus, LLC, 2015 U.S. Dist. LEXIS 79028 (W.D. Tenn. June 18, 2015). Williams-Sonoma claims that the former executive, Timothy Stover, conspired to steal the trade secrets underpinning Williams-Sonoma’s international supply chain operations upon taking a new position with rival Arhaus, LLC. The court preliminarily enjoined Stover and Arhaus from using or disclosing Williams-Sonoma’s trade secrets and Stover from recruiting Williams-Sonoma employees. However, in a mixed result for Williams-Sonoma, the court decided that the relevant legal factors weighed against an outright restraint on Stover’s employment with Arhaus despite what the court described as a “troubling pattern of repeated instances of bad faith, both by the pilfering party and the hiring organization.”