Illinois Appellate Court: Violation of Contractual Post-Employment Non-Compete Does Not Extend Duration of the Restrictive Covenant
An employer's successful lawsuit to enjoin two former highly-skilled employees from operating a competing financial services company resulted in only a one-month-long preliminary injunction -- despite proof of the employees' violation of the agreement -- because the contract did not allow an extension of the term based upon the employees' violation during the restriction period.
In Citadel Investment Group, LLC v. Teza Technologies, LLC, the Illinois Appellate Court recently affirmed the trial judge's entry of this short-term injunction, even though the two defendants had competed in violation of the contract and had separately violated a non-solicitation agreement during the nine-month period which began in mid-February 2009. Under Citadel's agreement, Citadel paid the two former employees tens of thousands of dollars during the non-compete period. Specifically defendant Mikhail Malyshev received $30,000 per month and defendant Jace Kohlmeier received $21,000 monthly.
But the Cook County Circuit Court, after an evidentiary hearing, found that the defendants had competed as early as late March 2009 by forming a competing firm. When Citadel learned on July 9, 2009 that the two employees already had formed what became Teza Technologies to compete in violation of their contractual obligations, Citadel moved for a preliminary injunction and the hearing was held on September 28. The trial court entered a written ruling on October 16, 2009 granting the injunction, but held that the injunction expired on November 16. The court specifically denied the plaintiff's request that the injunction extend for nine months from the date of the order.
The Illinois Appellate Court affirmed, finding that the express terms of the contracts limited the duration of the restrictive covenant to nine months after termination of employment. The court distinguished a prior opinion in Prairie Eye Center v. Butler, 329 Ill. App. 3d 293 (2002), which had upheld an extension of the term of the restrictive covenant because the contract in Prairie Eye expressly allowed an extension upon the finding of a breach. Because the Citadel agreement had no contractual language permitting an extension if the former employees violated the agreement, the appellate court declined to extend the length of the non-compete.
While the ruling relates to injunctive relief only and not issues of damages, the impact of the court's literal reading of the non-compete is obvious. Citadel did not obtain the nine-month window of non-competition for which it had bargained and paid because the contract failed to foresee and address what should occur if the defendants breached the agreement during its term.
The lesson to an employer operating in Illinois is simple. The contract drafter should add a sentence that provides that if the former employee is found to be in breach of the restrictive covenant, the parties agree that any injunction shall extend for the full duration of the non-compete period commencing on the date of the entry of the injunction. Otherwise the injunction remedy may prove to offer little, if any value, in the real world.