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Former Employer's Non-Compete Case Dismissed Out of the Gate


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10/10/2019
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It is indeed rare - contrary to popular belief - that a court will dismiss outright a non-compete claim before an answer is filed or any documents are exchanged in the discovery phase of a case. And the reason for that is, generally speaking, rather straightforward:

These cases tend to be heavily fact-specific, which means, as a practical matter, that a court will be very reluctant to toss cases without at least giving the plaintiff the opportunity to present their arguments as to why their former employee should be prevented from competing against them.

That's why this recent decision from an Illinois appellate court in Axion RMS, Ltd. v. Booth is so interesting, and unusual.

What Happened in Axion RMS, Ltd. v. Booth

In Axion, the plaintiff was - and is - an insurance broker that filed suit against its former president, Booth, for breach of his non-compete agreement and tortious interference, claiming that by the terms of his at-will employment agreement with Axion, Booth was barred from soliciting Axion’s clients or employees during his employment and for a period of two years following termination of his employment, yet he did precisely that immediately following his resignation from Axion 11 months after signing the agreement. In fact, Axion claimed, Booth not only went to work for a direct competitor, he affirmatively recruited many of Axion's employees over to his new employer, and solicited many of the clients he had worked with while at Axion.

In response to the complaint - which included a copy of the underlying employment agreement - Booth moved to dismiss the complaint in lieu of filing an answer, asserting that the noncompete clause in the employment agreement he signed lacked adequate consideration under Illinois law, because "he resigned from Axion less than a year after signing it and, therefore, the verified complaint was defective on its face."

The trial court agreed with Booth, and dismissed the complaint.

What Happened on Appeal

On appeal, Axion contended that the trial court erred in reaching its determination by considering only the length of time Booth worked at Axion after signing the employment agreement; in its view, the lower court should have instead applied a “totality of facts and circumstances” test, which would have necessarily permitted consideration of Booth’s increase in pay, newly issued stock, and promotion from his prior position as a Vice President as adequate consideration - notwithstanding his status as an "at-will employee" to still render the noncompete clause enforceable.

In rejecting Axion's argument, the appeals court cited to Axion's own agreement - and that put the matter to rest, stating:

"Axion argues that its verified complaint referenced the employment agreement and attached it, which in turn referenced the adequate consideration. However, the record is clear that the employment agreement cited Booth’s continued employment as the only consideration. A promotion or salary increase is not mentioned anywhere in the employment agreement ...

"In sum, Axion pled in its verified complaint that the only consideration given to Booth was his continued employment, and that he resigned less than two years later. This is inadequate consideration under existing case law. Consequently, it is readily apparent from the face of Axion’s verified complaint that there is no possible set of facts which would render the noncompete clause in the employment agreement enforceable."

The Takeaway

From my perspective, there is one key takeaway from this decision:

It is refreshing, because it demonstrates courage by a trial court to dismiss a case at an early stage when the facts call for it. In the same vein, had the court adopted Axion's argument, that would have diluted Illinois' rule mandating two years of continued employment to constitute sufficient consideration for a non-compete, because then any employer would be easily able to circumvent that rule by urging a "totality of factors" test.

 



Category: Non-Compete & Employment Agreements

Jonathan Cooper
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Non-Compete, Trade Secret and School Negligence Lawyer

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