Friday, December 28, 2012

The Year In Illinois Non-Competes Fittingly Concludes With Another Rule 23 Order

A few months ago, I wrote a post about a problem that I perceive with the way our appellate court of Illinois has been handling non-compete cases.

In short, the court can issue non-precedential Rule 23 orders, which constitute judgments rather than opinions. And they're not to be cited as precedent in future cases.

I have no problem with the concept of Rule 23 orders. They're meant to reduce the court's burden to crank out opinions that can later be cited back to them by lawyers as precedential and binding within an appellate district.

But in truth, they should be limited to two classes of cases: (1) review of criminal convictions; and (2) review of civil cases where there is a highly deferential standard of review. For instance, appellate review over a jury verdict under a manifest weight of the evidence standard is an ideal case for a limited, non-precedential opinion. Cases like that almost never announce some rule that future courts will point to as precedential.

But the non-compete cases that have come before the Appellate Court do not fall within these categories and address important issues of law, or interpretations of law, in the wake of the Supreme Court's Reliable Fire case late last year. My September post describes some of these rulings.

And so, with 2012 coming to a close, it seems only appropriate that our appellate court has done it again - issuing a Rule 23 order on a fairly significant question in a non-compete case.

The case of Saddlers Row, LLC v. Dainton (opinion contained below) arose out of a fairly common set of facts. The employee had a two-year, 75-mile general non-compete agreement, which he breached by going to work for a direct competitor a mere seven miles from his prior place of work. The employer acknowledged that customer relationships, not trade secrets, were the protectable interest. But the evidence showed that most of its customers were located within 40 miles of the employer's place of business - and that 75 miles stretched further than was necessary to protect the vast majority of its customer base.

The circuit court refused to impose an order of preliminary injunctive relief, finding the 75-mile scope overbroad. It then refused to blue-pencil the agreement and pare back the geographic scope by 25 or so miles.

The appellate court agreed that the geographic scope was unreasonable, but held that the circuit court abused its discretion by refusing to modify the covenant to make it enforceable.

The court looked at two critical factors in determining that circuit court should have modified the covenant:

1. The covenant's geographic scope, while overbroad, was close to reasonable. Since most of the employer's customers were within 40 miles or so of its place of business, a 75-mile restriction was hardly a major overreach. In fact, since the employer had customers out of state (apparently, very few), any line-drawing would be arbitrary. Put another way, the employer clearly made a good-faith effort at trying to draw a reasonable restriction.

2. The employee directly competed in close proximity to the employer. The court emphasized that this was not a case where the employee tried, in good faith, to compete in an area outside the employer's sweet spot, such that any competition would be minimal. This was an "in-your-face" breach. And because equitable considerations are paramount in any blue-penciling analysis, the appellate court deemed it important that the employee knew he was in blatant breach of the covenant.

The decision is obviously pro-employer, and it's rare to find cases like this where an appellate court finds that a refusal to blue-pencil is an abuse of the trial court's discretion. Off-hand, I can't think of many in Illinois like this. This demonstrates why the case should never have been a Rule 23 order. The court emphasized very specific considerations that come into play when determining whether blue-penciling is appropriate.

Of further interest is the court's omission of any analysis concerning why a customer non-solicitation covenant wasn't the proper type of contract to use in this case. When an employer is not trying to protect trade secrets, its need for a general non-compete is diminished. And in Saddlers Row, the employer admitted it wasn't trying to protect trade secrets. Its interest was in securing customers, and the more appropriate fit for that type of protectable interest would appear to be a common non-solicitation covenant. But this was not even discussed.

Saddlers Row v. Dainton

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