Wednesday, February 18, 2009

Illinois Decision Demonstrates Difficulty of Proving Protectable Interest in Customer Relationships (Brown & Brown v. Ali)

One of the most nebulous areas of non-compete law concerns the scope of a protectable business interests. While many states recognize similar interests that support a restrictive covenant, the devil always lies in the details.

In Illinois, only two protectable interests will validate an otherwise enforceable non-compete agreement: (1) confidential information an employee has attempted to use for his own benefit; and (2) near-permanent relationships with customers that the employee would not have had but for his affiliation with the employer.

Attorneys representing employers should exhaust every avenue to invoke the first protectable interest - use of confidential information. This rather undefined term gives an attorney the flexibility to be creative and make his or her case for why a departed employee has purloined information and tried to use it for his own self-interest. No physical taking of documents is necessary; use of confidential information can come from one's memory.

The second business interest is harder to justify, and a recent federal district court bench-trial confirms why this is so. In Brown & Brown v. Ali, the defendant was a highly paid, highly regarded executive for a wholesale insurance broker, specializing in the placement of insurance for public entities and non-profit insurance pools or trusts. His two-year client non-solicitation agreement prohibited him from contacting all of Brown & Brown's customers after his departure.

Despite the fact insurance brokerage is a highly competitive, relationship-driven business, the court found Brown & Brown could not establish a protectable interest in near-permanent customer relationships. The court relied on a number of Illinois decisions holding that, ordinarily, an employer engaged in sales has no protectable interest in its customer relationships because business is highly mobile and fluid.

Ultimately, the issue was of little consequence, and perhaps Brown & Brown's proof that Ali misused and took its business information impacted its presentation of evidence on customer relationships. Still, the ruling serves as a cautionary tale for employers relying on near-permanency to support its non-compete.

Additionally, the court again invalidated a choice-of-law provision - this time one favoring application of Florida law. The court relied on another state court decision involving the same employer and same agreement to conclude that public policy mandated application of Illinois law, rather than the chosen law by contract. Florida law prohibits consideration of whether a non-compete will impose a hardship on an employee, while Illinois courts have long considered this issue under the rubric of reasonableness.

The choice-of-law ruling demonstrates courts in Illinois will take a close look at an out-of-state's substantive law to determine whether applying it would be consistent with public policy in Illinois.


Court: United States District Court for the Northern District of Illinois
Opinion Date: 1/7/09
Cite: Brown & Brown, Inc. v. Ali, 2009 U.S. Dist. LEXIS 10252 (N.D. Ill. Jan. 7, 2009)
Favors: Employee
Law: Illinois

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