Woodfield Group, Inc. v. DeLisle

SIXTH DIVISION
March 31, 1998

No. 1-97-1737

WOODFIELD GROUP, INC., ) Appeal from the
an Illinois Corporation, ) Circuit Court of
) Cook County.
Plaintiff-Appellant, )
)
v. ) 95 CH 10936
)
DONNA DeLISLE, ) The Honorable
) Michael B. Getty,
Defendant-Appellee, ) Judge Presiding.
)
)
(THE FUTURE NOW, INC., )
an Ohio Corporation, )
)
Defendant.) )

JUSTICE GREIMAN delivered the opinion of the court:

Plaintiff, Woodfield Group, Inc., filed suit against
defendant Donna DeLisle, a former employee of Woodfield, seeking
money damages and injunctive relief resulting from an alleged
breach of a restrictive covenant agreement relating to her
employment with the company. The circuit court granted DeLisle's
motion to dismiss the claim, finding the restrictive covenant
unenforceable because it failed to meet the requirement of
ancillarity. Woodfield appealed.
For the reasons that follow, we reverse and remand.
The facts, according to the complaint, are as follows.
DeLisle began working as a sales representative for
Woodfield, a computer hardware and software company, in September
1988. In September 1993, Woodfield promoted DeLisle to the
position of sales manager, making her responsible for the day-to-
day supervision and management of Woodfield's sales
representatives and sales support staff. In this position,
DeLisle was entrusted with confidential information.
In February 1994, DeLisle executed a restrictive covenant
agreement with Woodfield. Under this agreement DeLisle was
prohibited from soliciting or accepting sales of any computer
hardware or software from any customer or active prospect of
Woodfield's for a period of 18 months following any termination
of her employment. For the same time period, the agreement
prohibited DeLisle from soliciting, inducing or influencing any
person who had a business relationship with Woodfield to
discontinue or reduce the extent of such relationship. The
agreement also prohibited DeLisle from disclosing any of the
company's confidential information for the same time period.
The agreement recited several reasons for its creation,
including Woodfield's expenses in developing expertise in the
business, its client and customer base, and its goodwill. The
agreement also stated that Woodfield's methods of doing business
and its client base were confidential and Woodfield wished to
maintain that confidentiality. The parties acknowledged and
agreed that any breach by an employee of the restrictive covenant
would be severely detrimental to the business of Woodfield, and
that, without agreeing to the terms of the covenant, Woodfield
would not employ the employee. The agreement stated that it
supplemented and was in addition to all other employment
agreements and clarified:
"This Agreement shall not be construed
in any way as an employment agreement, or a
guarantee of employment, of Employee by the
Woodfield Group. Employee is, and shall
remain, an 'employee at will' of the
Woodfield Group."

On July 18, 1995, DeLisle terminated her employment with
Woodfield. She then went to work for The Future Now, a company
engaged in the same business and market area as Woodfield.
Woodfield filed suit alleging that DeLisle breached the
restrictive covenant agreement after taking new employment with
The Future Now by soliciting and accepting from Woodfield's
customers sales of computer software or hardware, and by
utilizing and disclosing Woodfield's confidential information in
order to sell computer software and hardware for her new
employer. As a result, Woodfield alleged that certain customers
began purchasing goods and services from The Future Now which
they had previously purchased from Woodfield. Woodfield sought
money damages and injunctive relief.
DeLisle moved to dismiss the count against her, contending
that the restrictive covenant agreement is not enforceable. The
circuit court agreed, stating:
"The restrictive covenant agreement in
the present case is not an employment
contract. This is manifestly evident by the
agreement itself which provides employee-at-
will. This agreement shall not be construed
in any way as an employment agreement or a
guarantee of employment of the employee by
Woodfield Group. The employee is and shall
remain an 'employee-at-will of the Woodfield
Group['] -- per the restrictive covenant
agreement section 0.8.

Because the Woodfield Group specifically
provided that the agreement could not be
considered an employment contract, there is
no employment contract to which the
restrictive covenant could be ancillary. As
such, similar to the covenant in Creative
Entertainment,[Inc. v. Lorenz, 265 Ill. App.
3d 343 (1994)], the restrictive covenant
agreement DeLisle signed is a naked
agreement, the sole purpose of which was to
restrain trade. The restrictive covenant
agreement is therefore not enforceable.

The circuit court granted the motion to dismiss the claim
against DeLisle. Woodfield moved for a finding pursuant to
Supreme Court Rule 304(a) (134 Ill. 2d R. 304(a)) and the court
entered that finding. Woodfield now appeals the dismissal of the
claim against DeLisle, arguing that the circuit court erred in
finding the restrictive covenant agreement unenforceable for lack
of ancillarity. We agree and reverse the lower court's ruling.
A section 2--615 (735 ILCS 5/2--615 (West 1996)) motion for
dismissal should not be granted unless it clearly appears that no
set of facts could be proved that would entitle the plaintiff to
recovery. Mt. Zion State Bank & Trust v. Consolidated
Communications, Inc., 169 Ill. 2d 110, 115 (1995). In ruling on
such a motion, only those facts apparent from the face of the
pleadings, matters of which the court can take judicial notice,
and judicial admissions may be considered. Mt. Zion, 169 Ill. 2d
at 115. The appellate court reviews such orders de novo (Estate
of Strocchia v. City of Chicago, 284 Ill. App. 3d 891, 898
(1996)), and all well-pleaded facts and reasonable inferences are
taken as true. Mt. Zion, 169 Ill. 2d at 115.
The determination of whether a restrictive covenant is
enforceable is a question of law. Corroon & Black of Illinois,
Inc. v. Magner, 145 Ill. App. 3d 151, 162 (1986). A post
employment restrictive covenant is unenforceable when "its sole
purpose is to restrict competition." Millard Maintenance Service
Co. v. Bernero, 207 Ill. App. 3d 736, 744 (1990). "[O]rdinarily
an employer has no proprietary interest in its customers."
Preferred Meal Systems, Inc. v. Guse, 199 Ill. App. 3d 710, 718
(1990). An individual has a fundamental right to pursue a
particular occupation and "[o]ne who has worked in a particular
field cannot be compelled to erase from his mind all of the
general skills, knowledge and expertise acquired through his
experience." ILG Industries, Inc. v. Scott, 49 Ill. 2d 88, 93-94
(1971).
A post employment restrictive covenant will be enforced if
its terms are reasonable. Millard, 207 Ill. App. 3d at 744. It
must be reasonable in geographical and temporal scope and
necessary to protect a legitimate business interest of the
employer. Millard, 207 Ill. App. 3d at 744. Prior to analyzing
the reasonableness of a covenant not to compete, the court must
make two determinations: (1) the covenant must be ancillary to a
valid contract, that is, it must be subordinate to the contract's
main purpose; and (2) there must be adequate consideration to
support the covenant. Millard, 207 Ill. App. 3d at 744.
The circuit court in this case found that the restrictive
covenant agreement signed by the parties could not be ancillary
to a valid contract because there was no employment contract.
DeLisle was an employee at will. Further, the language of the
restrictive covenant agreement specifically stated that it was
not an employment contract. The court determined, based on
Creative Entertainment, 265 Ill. App. 3d 343, that the agreement
was unenforceable and dismissed the claim.
Woodfield contends the circuit court erred in finding there
was a lack of ancillarity between the covenant and DeLisle's
employment. It argues that the court erred in relying on the
holding and rationale set forth in Creative Entertainment because
the rule announced in that case was based upon "a fundamental
misapprehension of the nature and purpose of the doctrine of
ancillarity." Woodfield urges this court to adopt the reasoning
of the fourth district in Abel v. Fox, 274 Ill. App. 3d 811
(1995), and the second district in Lawrence & Allen, Inc. v.
Cambridge Human Resource Group, Inc., 292 Ill. App. 3d 131
(1997), which expressly reject the rationale of Creative
Entertainment.
DeLisle contends that Creative Entertainment does not
necessarily hold that restrictive covenants are per se
unenforceable in oral at-will employment cases. She argues,
however, that regardless of how the court interprets Creative
Entertainment, the restrictive covenant agreement in this case
disavows any nexus to the terms of DeLisle's employment, and
therefore the covenant cannot be subordinate to the main purpose
of the employment relationship. Thus, according to DeLisle the
covenant must be held invalid.
In Creative Entertainment, 265 Ill. App. 3d at 344, an
employee signed a restrictive covenant with his employer eight
months after he had begun working for the employer. The covenant
prohibited the employee from contacting or soliciting customers
or potential customers of the employer for a two-year period
after termination. Creative Entertainment, 265 Ill. App. 3d at
345. Over three years later, the employee voluntarily resigned.
Later that month, the employee started his own company, providing
the same services that the employer had provided. The employer
sued for breach of the restrictive covenant and the trial court
dismissed the complaint. Creative Entertainment, 265 Ill. App.
3d at 346.
The First District Appellate Court upheld the trial court's
decision, holding that the restrictive covenant was unenforceable
because there was no contract for which the covenant could be
ancillary. Creative Entertainment, 265 Ill. App. 3d at 351. The
court noted that at the time the employee signed the agreement
"[t]here were no negotiations of the terms of
employment, nor were the employment terms in
writing. The agreement itself did not
specify a definite length of time for which
[employee] would be employed by [employer].
In fact, [employer] conceded that
[employee's] employment was at will and
subject to change at any time in [employer's]
sole and exclusive discretion. Hence, there
were no facts from which the trial court
could conclude that a valid employment
contract existed. The trial court
characterized the agreement as a 'naked
agreement,' with which we agree. It was not
a promise by [employer] of a definite term of
employment in exchange for a promise by
[employee]. There were no provisions for
termination of the employment relationship by
either party, no additional incentives or
forbearances. Clearly, the covenant was not
ancillary to an employment contract. The
sole purpose of the agreement was to restrain
trade." Creative Entertainment, 265 Ill.
App. 3d at 348-49.

However, several subsequent cases have disagreed with
Creative Entertainment.
In Abel, 274 Ill. App. 3d 811, the fourth district reversed
a dismissal of a claim for breach of a covenant not to compete.
Fox was employed under an oral at-will employment agreement with
a cleaning service company. Abel, 274 Ill. App. 3d at 812-13.
Sometime after her employment in 1990, Fox signed a covenant
stating that she would not compete with her employer for three
years after termination of employment and she would not make use
of customer lists acquired during her employment with the
company. In 1993, Fox terminated her employment with the company
and began to solicit its customers on behalf of her newly formed
cleaning service. Abel, 274 Ill. App. 3d at 813. Her former
employer filed suit and, following Creative Entertainment, the
trial court dismissed the complaint.
On review, the fourth district reversed, stating:
"We read Creative Entertainment *** to
stand for the proposition [that] a covenant
not to compete signed by an at-will employee
employed under an oral agreement cannot be
ancillary to an employment agreement, because
an at-will employee employed under an oral
agreement does not have an otherwise 'valid
employment contract.'" Abel, 274 Ill. App.
3d at 816.

The fourth district criticized Creative Entertainment for
"imprecisely stating the law." Abel, 274 Ill. App. 3d at 820.
The fourth district examined the history of ancillarity and
concluded that "[t]o be enforceable, a covenant not to compete
must be ancillary to either a transaction (an otherwise valid
contract), or a valid relationship." (Emphasis in original.)
Abel, 274 Ill. App. 3d at 820. The court reasoned:
"Although an at-will employment agreement,
whether written or oral, might not be
considered 'enforceable' in the strictest
sense of the term, it is nonetheless an
agreement and relationship with numerous
legal consequences, imposing rights and
obligations on both parties. Therefore, a
noncompetition covenant entered into by an
at-will employee, whether the employee is
employed under a written or oral agreement,
complies with the requirement of ancillarity.
This is because a covenant in such a
situation is not a 'naked' restraint on
trade, but instead is merely ancillary to the
primary purpose of the relationship: an
employer-employee relationship. Thus,
noncompetition covenants occurring in an at-
will employment relationship are not
unenforceable per se. Instead, the judicial
determination whether they are enforceable is
based on the same rules which apply to any
other post-employment noncompetition covenant
made during an employment relationship."
Abel, 274 Ill. App. 3d at 820.

The fourth district found Fox's covenant ancillary to the
employment relationship and ruled it could be an enforceable
covenant if it passed the other requirements for enforceability.
Abel, 274 Ill. App. 3d at 821.
In Lawrence, 292 Ill. App. 3d at 137, the second district
also rejected the ruling of Creative Entertainment and followed
the "well-reasoned decision" in Abel, recognizing that a covenant
not to compete "must be ancillary to either a transaction (an
otherwise valid contract) or a valid relationship." (Emphasis in
original.) The court determined that the restrictive covenant in
that case was ancillary to the employee's employment relationship
with the former employer despite the fact that it had been an at-
will employment situation. The court ultimately found, however,
that the covenant was not enforceable because its restrictions
were unreasonable and the employer lacked a legitimate business
interest. Lawrence, 292 Ill. App. 3d at 144.
Upon review of these cases and the underlying rationale, we
agree with the second and fourth districts of this court and
decline to follow Creative Entertainment. A restrictive covenant
agreement may meet the requirements for ancillarity if it is
ancillary to an employment relationship even though the
employment may lack a written agreement and remain at will.
DeLisle nevertheless suggests that the language of the
restrictive covenant agreement in this case makes the situation
distinguishable from the prior cases, including Creative
Entertainment, because the agreement expressly states it is not
an employment agreement. We find it significant, however, that
the preamble to the covenant agreement directs that employment
would not continue unless the employee signed the agreement. We
do not find the language of the agreement a sufficient
distinction here.
We also observe that section 187 of the Restatement (Second)
of Contracts, examined in Abel, 274 Ill. App. 3d at 816-17,
discusses the doctrine of ancillarity with regard to restrictive
covenants, stating:
"A promise to refrain from competition that
imposes a restraint that is not ancillary to
an otherwise valid transaction or
relationship is unreasonably in restraint of
trade." (Emphasis added.) Restatement
(Second) of Contracts 187, at 38 (1981).

Section 188 further states:
"(2) Promises imposing restraints that are
ancillary to a valid transaction or
relationship include the following:
***
(b) a promise by an employee or other
agent not to compete with his employer or
other principal." (Emphasis added.)
Restatement (Second) of Contracts 188(2)(b),
at 41 (1981) .

Comment g to section 188 states in pertinent part:
"A restraint may be ancillary to a
relationship although, as in the case of an
employment at will, no contract of employment
is involved." Restatement (Second) of
Contracts 188, Comment g, at 45 (1981).

Under the Restatement, the restrictive covenant agreement
signed by DeLisle would be ancillary to the employment
relationship of the parties regardless of the fact that her
employment was at will. We agree with the other districts that
Illinois courts should follow this analysis and conclude that an
employment relationship should be included in the rule for
reviewing ancillarity in restrictive covenant cases.
We therefore hold that the restrictive covenant agreement in
this case meets the requirement of ancillarity. As pled, we find
the covenant subordinate to the purpose of the parties'
employment relationship. We do not express an opinion as to the
additional issues of enforceability (i.e., consideration and
reasonableness), but remand to the circuit court for proceedings
consistent with this opinion.
We note, however, that Illinois law provides that
substantial continued employment may constitute sufficient
consideration to support a restrictive covenant agreement. See,
e.g., Lawrence, 292 Ill. App. 3d at 138 (little over two years of
continued employment after signing restrictive covenant
constituted sufficient consideration to support agreement);
Agrimerica, Inc. v. Mathes, 199 Ill. App. 3d 435, 442 (1990)
(more than two years of continued employment after signing
restrictive covenant constituted sufficient consideration to
support agreement); but see Mid-Town Petroleum, Inc. v. Gowen,
243 Ill. App. 3d 63, 71 (1993) (affirming determination that
seven months of continued employment did not constitute
sufficient consideration). We do not believe case law limits the
courts' review to a numerical formula for determining what
constitutes substantial continued employment. Factors other than
the time period of the continued employment, such as whether the
employee or the employer terminated employment, may need to be
considered to properly review the issue of consideration.
Reversed and remanded.
CAMPBELL, P.J., and QUINN, J., concur.