Don’t Let the Janitor [Rule] Sweep Away Your Non-Compete

Non-Compete, Janitor Rule, Employment Agreements, Restrictive Covenants

A recent federal decision from the Northern District of Illinois again illustrates the perils of drafting and attempting to enforce overbroad restrictive covenants. In the case of Medix Staffing Solutions, Inc. v. Dumrauf, 17-cv-6648, 2018 WL 1859039 (N.D.Ill. Apr. 17, 2018)(Ellis, J.), Medix, a pharmaceutical, biotech and medical device company, attempted to enforce a non-compete agreement against its former Director, Dumrauf, who had been responsible for its medical sales and recruiting strategies and who had left to work for a direct competitor, ProLink. 

In relevant part, Medix’s non-compete purported to prohibit Dumrauf from being “connected in any manner with the…operation…of any business that either: (1) offers a product or services in actual competition with Medix or (2) which may be engaged directly or indirectly in the Business of Medix” within a 50 mile radius of any office in which Dumrauf worked for Medix. According to the non-compete, the legitimate business interest on which it was premised was the need to protect Medix from Dumrauf’s personal relationships with its customers (presumably which it had paid him to develop on its behalf). Although Dumrauf insisted that 90% of his activities for ProLink would be in Ohio and Kentucky when he had been employed in Medix’s Arizona office, he did in fact work periodically from ProLink’s Arizona office. Thus, it appeared that Dumrauf’s employment with ProLink violated the letter of his Medix non-compete.

Dumrauf filed a Fed.R.Civ.P. 12(b)(6) motion to dismiss the complaint, arguing that the non-compete was unenforceable as overbroad, in part because it would keep him from performing any services whatsoever for a competitor of or business similar to Medix, regardless of whether it related to or implicated Dumrauf’s prior position with Medix or, by extension, its purported interests in customers. In particular, Dumrauf argued that the non-compete violated the so-called “janitor rule,” as it would preclude him from performing janitorial services for a competitor.

Although Judge Ellis noted that ordinarily an employer should have an opportunity to develop a factual record to support its restrictions (the issue of whether a restriction is necessary vis-à-vis a former employer’s legitimate business interests is typically an issue of fact), she dismissed the claim at the pleading stage as patently overbroad as a matter of law. In doing so, she first noted  the starting premise that restrictive covenants are disfavored in Illinois, and that the proponent of the restriction must show that its full extent is necessary to protect its purported interests. According to the court, this covenant was patently unreasonable because an employer cannot prevent a former employee from “working for a competitor in a non-competitive capacity.” Moreover, the court refused to “blue-pencil” the overbroad agreement, citing cases stating that a court should refrain from modifying a covenant that is so broad as to be patently unfair as written.

The case thus again illustrates the principle that employers should draft restrictions narrowly in light of their most important interests and go no further, particularly Illinois courts rarely save overbroad restrictions by modifying them per blue-penciling clauses.

by Robert H. Smeltzer

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