Recent Illinois Developments in Employee Non-Compete and Trade Secret Enforcement Actions: What Every Employer Should Know
July 31, 2017
Over the past several months, state and federal courts in Illinois have issued several important decisions that will impact employers’ efforts to enforce post-employment restrictive covenants and protect their trade secrets. Illinois employers should carefully review these decisions when considering whether to pursue litigation to enforce a restrictive covenant agreement, such as a non-compete agreement, or hiring an employee who is subject to such an agreement.
LinkedIn Invitations Do Not Constitute “Solicitations.” Last month, the Illinois Appellate Court held that a former employee’s social media activities were not “solicitations” that breached his employment agreement. In Bankers Life & Cas. Co. v. Am. Senior Benefits LLC, a Bankers Life sales manager, Charles Gelineau, left to take a similar role for a direct competitor, America Senior Benefits (ASB). Gelineau had signed an employment agreement with Bankers Life prohibiting him from “inducing or attempting to induce” any Bankers Life employees to resign their employment, or to contract with or sell insurance products for any company other than Bankers Life.
After joining ASB, Gelineau did what many in his position would: he updated his LinkedIn profile to reflect his new job. Additionally, Gelineau “connected” on LinkedIn with three Bankers Life’s employees. According to Bankers Life, several employees who connected with Gelineau clicked his profile link, learned of ASB job opportunities he posted on his LinkedIn page, applied for jobs with ASB, and were hired. Gelineau never used LinkedIn to send direct messages to Bankers Life employees regarding professional opportunities. Instead, the individuals on his email contact list were all sent generic emails asking them to form a professional connection on LinkedIn.
The Illinois Appellate Court held that these “passive” social media connections did not constitute solicitations in violation of the employment agreement. Following similar state court decisions in Connecticut and Massachusetts, the court reasoned that communications on social media that inform former co-workers that an employee changed jobs, identified the new employer, and provided an example of the employee's work did not constitute solicitation. Additionally, because the job postings for ASB were posted on Gelineau’s public LinkedIn homepage, they were not “solicitations.” The court cautioned, however, that the substance of communications should be scrutinized by circuit courts, and direct “pitches” to former co-workers or customers could constitute a breach of a non-solicit provisions.
This case clarifies the bounds of solicitations in the context of social media. With still relatively little guidance from the courts on how social media activities may implicate restrictive covenants, the Bankers Life decision indicates that without targeted outreach to specific individuals at the employee’s former employer, a social media invitation, or general advertising on LinkedIn or similar public webpages, will typically not constitute “solicitation” in violation of a restrictive covenant.
Court Applies “Inevitable Disclosure” Doctrine under Defend Trade Secrets Act. Recently, a court in the Northern District of Illinois refused to dismiss a trade secret misappropriation claim relying on the so-called inevitable disclosure doctrine, which allows a plaintiff to prove his claim by showing that the defendant’s new employment will inevitably lead him to rely on his former employer’s trade secrets.
The decision is significant because the case, Molon Motor and Coil Corp. v. Nidec Motor Corp., was brought under both Illinois’ trade secrets law and the federal Defend Trade Secrets Act of 2016 (DTSA). Although the inevitable disclosure doctrine has been recognized in trade secrets cases brought under Illinois law, many commentators believed that the DTSA’s language prohibiting injunctions based solely on “information the person knows” precluded application of the doctrine.
In Molon Motor, Molon alleged that its former Head of Quality Control went to work for a direct competitor, Nidec, but not before downloading dozens of Molon’s engineering, design, and quality control files onto a jump drive. The court analyzed the state and federal trade secrets claims together, and found that Molon had adequately alleged the factors required to support application of the inevitable disclosure doctrine: Molon and Nidec were competitors; the employee’s position at Molon was similar to the one he assumed at Nidec; and Nidec had not taken adequate steps to prevent the employee from using or disclosing Molon’s trade secrets. Accordingly, Molon Motor’s allegations sufficed to “trigger the circumstantial inference that the trade secrets inevitably would be disclosed,” and therefore survived Nidec’s motion to dismiss.
The Molon Motor decision is helpful for employers because it supports the application of the inevitable disclosure doctrine in DTSA cases. The doctrine is a powerful tool for plaintiffs, particularly in the early stages of a trade secret misappropriation case before they have had the benefit of discovery to uncover facts supporting their allegations of misappropriation.
Federal Courts Overwhelmingly Reject Fifield. Last week another federal court joined the chorus rejecting the application of the so-called “Fifield rule.” As we have previously discussed, in 2013 the Illinois First District Appellate Court held in Fifield v. Premier Dealer Services that an employee must work for at least two years after signing a restrictive covenant agreement for the continued, at-will employment to constitute adequate consideration. If an at-will employee does not work for at least two years, and is not given some additional consideration for signing the agreement, Fifield’s bright line rule dictates that courts in the First District (i.e., Cook County) will not enforce non-compete agreement against an employee who has not worked for at least two years after signing the agreement or was not provided additional consideration for signing the agreement.
The Illinois Supreme Court has not addressed this issue and federal courts applying state law are not bound to follow state appellate court decisions if they believe that the state Supreme Court will reject the holding when presented with the issue. In Apex Physical Therapy v. Ball et al., the Southern District of Illinois found this that the Illinois Supreme Court would most likely reject the arbitrary two year bright-line rule in favor a fact-specific, totality-of-the-circumstances approach to the question of whether there was adequate consideration for the restrictive covenant agreement. Citing five opinions from the Northern District of Illinois that reached the same conclusion (and noting that only one court reached the opposite conclusion), the court reasoned that the bright line rule created absurd results. For example, if two employees both execute restrictive contracts on the same day, but Employee A works for 25 months, and Employee B quits at 23 months, Fifield would require enforcement against Employee B but not Employee A. The court found this result “would not serve and protect the content of a restrictive contract,” and rejected what it called the “magical two year mark” laid out in Fifield.
This decision confirms that the likelihood of the Fifield 2 year rule being applied depends largely on whether a case is filed in state or federal court. The enactment of the federal DTSA last year now allows an employer to file trade secret claims in federal court in most cases where the employer stands a better chance of avoiding defeat on the threshold question of whether the agreement is supported by adequate consideration, even if the employee worked for the employer for fewer than two years. Until the Illinois Supreme Court weighs in on the Fifield rule, employers seeking to enforce their restrictive covenant agreements may find it advantageous to bring their claims in federal, rather than state, court. Conversely, hiring employers and employees seeking to avoid the enforcement of a non-compete agreement cannot automatically assume that an agreement will be declared invalid for lack of consideration under Fifield.