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In a recent decision, a federal trial court in Illinois allowed an employee’s tortious interference claim to continue against his former employer alleging it had exaggerated the reach of a noncompete agreement that he had signed. The case highlights that employers may need to be cautious about actual or perceived overreach when communicating the scope of a restrictive covenant.

Quick Hits

  • An Illinois federal court allowed tortious interference claims to continue against a former employer over its enforcement of a noncompete agreement against a former employee.
  • The court found that the issue of whether the company acted with malice in characterizing the reach of the agreement required a “factual inquiry.”

On June 26, 2023, in Ellicson v. Oden Machinery, a judge in the Northern District of Illinois denied the former employer’s motion to dismiss the claim, finding there was a question of fact as to whether it “honestly believed” its assertions about the scope of the covenant.

Adam Ellicson, a salesman for Oden Machinery, left his position with Oden and accepted a similar position with a competitor, NJM Packaging. After Ellicson accepted the new job offer, Oden sent a letter to Ellicson and NJM asserting that Ellicson’s employment with NJM violated a noncompete agreement he had signed with Oden.

The noncompete agreement applied to “those territories” to which he had “been assigned” at Oden. According to the suit, Ellicson believed that he had been assigned to the “Eastern Sales Territory” encompassing several eastern seaboard states, parts of Canada, and Mexico. In his new position with NJM, he expected to work entirely outside that territory.

In Oden’s enforcement letter, the company asserted that Ellicson was prohibited from competing “nationwide.” Oden further enclosed a copy of the noncompete agreement. NJM, wishing to stay clear of litigation, told Ellicson it would withdraw his offer unless he could resolve the dispute with Oden.

Ellicson explained to Oden that he believed his noncompete covered only the Eastern Sales Territory. Oden, however, claimed that because Ellicson had sold to customers outside that territory, he was restricted nationwide. To resolve the dispute, Ellicson proposed a nonsolicit agreement that would have restricted him from dealing with those specific customers. However, Oden refused to budge on a nationwide reach of the noncompete agreement. NJM then withdrew the job offer, and Ellicson filed suit against Oden claiming tortious interference.

In denying Oden’s motion to dismiss, the Northern District of Illinois stated that Oden “has a strong claim” that its alleged interference was privileged because its actions were limited and aimed only to enforce its rights under the noncompete agreement. However, the court found that it could not determine at the dismissal stage whether Oden’s actions were “malicious” and made “without justification.”

While Oden had provided the actual agreement to NJM—meaning NJM was aware of the specific language of the agreement—the court found that fact did not resolve the point of contention over the applicable territory. The court was unable to decide whether Oden’s assertions were an honest “opinion” or an “outright falsehood.” In other words, the court could not tell whether “assigned territories” might be “plausibly construed broadly to encompass any state where Ellicson made sales” or “Oden knowingly advanced a frivolous interpretation of the agreement.”

Next Steps

The ruling comes at the motion to dismiss stage and whether Oden ultimately prevails remains to be seen. Still, the case highlights potential pitfalls for employers when seeking to invoke a restrictive covenant. The ruling suggests that simply supplying the exact terms of an agreement may not be sufficient to avoid liability as courts may look to the additional characterization of undefined terms to determine potential malice. Employers may want to review their noncompete agreements to be sure they align with the actual duties of employees under such agreements. They may further want to consider how and when such agreements are enforced.

Ogletree Deakins’ will continue to monitor developments and will provide updates on the Unfair Competition and Trade Secrets blog.

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