cases, commentary and news related to restrictive covenants
Wednesday, March 25, 2009
Illinois Court Goes Bananas Over Unlimited Non-Compete Agreement (Del Monte Fresh Produce v. Chiquita Brands)
Illinois courts have been fairly uniform on the rule-of-reason as applied to industry non-compete agreements. While there is a legitimate debate brewing over whether (or, perhaps to what extent) an employer must show a protectable interest in support of a non-compete, patently unreasonable and overbroad covenants continue to be struck down.
Consider the case of Kim Kinnavy, a former district sales manager with Del Monte who was in charge of customers with banana supply contracts. Kinnavy signed a one-year non-compete contract barring her from working industry-wide for a wide range of businesses involved in the supply or brokerage of fresh vegetables or fruit.
As Judge Hibbler noted, "the Non-Compete prohibits Kinnavy from 'being connected in any manner with' an entity that brought fruit, vegetables, or other produce from Del Monte. Under these terms, Kinnavy could not work as a cashier at a Piggly-Wiggly that bought produce from Del Monte." This example highlights a problem I frequently see in analyzing non-competes: employers give too little thought to drafting the contract so that it contains reasonable parameters on the type of employment that is off-limits.
The fundamental problem here is with notice: if a non-compete is a blanket, industry-wide ban, the employee has no idea what he or she is entitled to do and is therefore discouraged from seeking a job with any competitor, even if that job bears no rational nexus to the job he or she has just left. The court also noted the worldwide ban on employment for one-year and deemed it fundamentally unreasonable, citing a litany of Illinois cases construing and rejecting as unreasonable similar covenants.
Given the breadth of the restrictions, the court declined to modify or blue-pencil the covenant to make it more reasonable. Of primary concern to Illinois courts is the language of the contract. Courts simply won't employ the blue-pencil rule if the employer misses by a wide margin. Here, the covenant failed on two grounds of reasonableness - geographic reach and scope of activity - and the court was not inclined to rewrite the contract for the employer.
The court declined to use the modification rule based on the express language of the contract. Even though the non-compete contained a severability clause, the court found that the non-compete was an "essential feature of the contract at issue" and that the severability rule could not apply. In particular, the contract specifically stated "each of the above provisions is essential to the Company and the Company would not furnish the Employee the consideration set forth in this Policy [of Trade Secret and Non-Competition] absent the Employee's agreement to abide by and be bound by each of the above provisions..." In any case where an employer seeks to invoke the blue-pencil doctrine, the reasoning employed in Judge Hibbler's ruling should be examined carefully.
Finally, for the third time in the last two years, the court struck down a Florida choice-of-law clause as contrary to Illinois public policy. I previously wrote about this issue in another post.
Court: United States District Court for the Northern District of Illinois
Opinion Date: 3/19/09
Cite: Del Monte Fresh Produce, N.A., Inc. v. Chiquita Brands Int'l, Inc., 616 F. Supp. 2d 805 (N.D. Ill. 2009)
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