Court Can Shorten Overly Broad Non-Compete In Recruiting Business Dispute – IL Court (Applying Md. Law)

blue pencilIn TEKsystems, Inc. v. Lajiness, 2013 WL 3389062 (N.D.Ill. 2013), the Northern District of Illinois, applying Maryland law (due to a contractual choice of law provision), upheld a 50 mile/18 month restrictive covenant in a recruiter’s employment contract. 

The plaintiff employer sued one of its former recruiters for violating a non-compete provision contained in a written employment contract when the recruiter went to work for a competitor.  The employment contract provided that Maryland law would govern (Maryland was where plaintiff was headquartered), and precluded the defendant from competing with plaintiff in the job placement business for a period of 18 months and within a 50-mile radius post-employment. 

The contract contained some drafting precision: it only prevented the recruiter defendant from working for a competitor who engages in any aspect of plaintiff’s business for which defendant specifically performed services or about which defendant obtained confidential information.  2013 WL 3389062, *4.   In other words, the restriction didn’t entirely ban the defendant from working in any capacity for a competitor. If the recruiter’s job duties while at the plaintiff employer differed qualitatively from his duties at the competitor, this wouldn’t violate the non-compete. 

The defendant filed a 12(b)(6) motion to dismiss on the basis that the restrictive covenant was facially overbroad.  The Northern District denied the motion and held that the restrictive covenant was reasonable in terms of time and space under Maryland law.

Q: Why?

A: The Court first validated the Maryland choice of law provision since, under Illinois conflicts of law principles, Maryland had a definite connection to the lawsuit since plaintiff was headquartered there.  There were also no public policy concerns triggered by applying Maryland law.

The Court then applied Maryland restrictive covenant law.  In Maryland, restrictive covenants spanning 50 miles and more than 18 months had been upheld and that this particular non-compete was narrowly drawn only to prevent defendant from competing on matters “about which [he] gained specialized or confidential knowledge while employed at [TEKsystems].”  2013 WL 3389062, *4-5.  The court also stated that even if the plaintiff’s non-compete clause was overbroad, Maryland courts routinely “blue-pencil” such non-compete clauses, paring them down to shorter time and space limits.  Id. at * 5.

In finding that TEKsystems stated a colorable breach of contract claim, the Court found that it sufficiently alleged defendant had access to and contact with plaintiff’s confidential information and customers and was now working in a similar position for a competitor.  Accordingly, for purposes of a 12(b)(6) motion – which accepts as true all facts alleged in a complaint -plaintiff sufficiently stated a breach of contract claim premised on defendant’s violation of the non-compete provision in the TEKsystems employment agreement.

The Court did dismiss plaintiff’s equitable accounting claim on the basis that plaintiff had an adequate remedy at law.  Maryland equitable accounting law (like Illinois) posits that an adequate legal remedy (i.e., a breach of contract claim) will defeat an equitable accounting claim.  Here, since the employment contract contained detailed formulas to compute plaintiff’s lost profits and sales in the event an employee breached the contract, this was a clear legal remedy (i.e., a breach of contract suit) for the plaintiff.

Take-away:  Definitely a pro-employer case.  It upholds a 18 month/50-mile restrictive covenant and makes clear that even if the restriction was too broad, a Maryland court (and likely an Illinois court, too), could simply edit and narrow down the scope of the non-compete. This ability to adjust the non-compete’s reach strikes a balance between the two competing interests that lie at the heart of non-compete and trade secrets cases: protecting the employer’s legitimate business interests while at the same time allowing an employee to earn a living in his chosen field.

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PaulP

Litigation attorney at Fisher Kanaris, P.C. representing businesses and individuals in all types of commercial disputes.

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