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Shifting Requirements for Non-Disclosure Agreements in Illinois Employment Contracts?

Joshua Kurtzman and Linda K Stevens

Shifting Requirements for Non-Disclosure Agreements in Illinois Employment Contracts?
courtneyk via Getty Images

In an environment where employees change jobs frequently, how can an employer protect its confidential information?

In Illinois, the answer to that question may be changing. In late 2015, two courts handed down noteworthy "employee-friendly" decisions. One, a federal court case applying Illinois law, held a non-disclosure agreement unenforceable because it lacked a time or geographical limit for the nondisclosure of confidential information. The other, an Illinois appellate court decision, declined to enforce a nondisclosure agreement—which contained fairly standard confidentiality language—because it was overbroad. While different in many respects, both decisions bear consideration from practitioners drafting nondisclosure agreements in Illinois.

Fleetwood Packaging v. Hein, No.14C9670 (N.D. Ill., Oct. 20, 2015)

In Hein, a federal district court found a nondisclosure agreement unenforceable because it did not set a time or geographic limit on the disclosure of confidential information. For several reasons, many practitioners had understood such limits to be unnecessary for confidentiality provisions. For example, the ease with which large amounts of information and data can be transferred from one location to another, and the decreasing relevance of geographic boundaries in so many industries, makes usage of such boundaries in a non-disclosure agreement problematic. Moreover, the Illinois Trade Secrets Act (ITSA) contains a contracts savings clause expressly stating that "a contractual or other duty to maintain secrecy or limit use of a trade secret shall not be deemed to be void or unenforceable solely for lack of durational or geographical limitation on the duty." 765 ILCS 1065/8(b)(1).

In declining to enforce the nondisclosure agreement, the court drew a distinction between information that constitutes a trade secret and other confidential information, holding that only agreements to protect the former may omit such limitations. In reaching this result, the court noted that pre-ITSA case law had required such limits, and then interpreted the ITSA's contracts savings clause to refer and apply only to contracts protecting trade secrets.

Employers and those who represent them can take some solace in two facts. First, this case does not apply to a company's ability to protect information that constitutes a trade secret – by contract or through a claim brought under the ITSA. Second, this opinion is not binding on other federal courts in Illinois or Illinois state courts and may not presage the result in other cases. Nevertheless, practitioners should expect this case to be invoked by those challenging the enforceability of confidentiality agreements.

AssuredPartners, Inc. v. Schmitt, No. 2015 Ill App. (1st) 1411863 (1st Dist., Oct. 26, 2015)

In AssuredPartners, an Illinois appellate court also sided with the employee and deemed certain provisions of his employment contract to be overly broad and unenforceable—including a nondisclosure provision containing fairly standard language. The employee, an insurance broker, had substantial prior experience and relationships in the insurance industry. He had been employed for a number of years when, two years prior to this lawsuit, AssuredPartners acquired the employee's brokerage firm and required all employees to sign revised employment agreements. These agreements, eventually rejected by the court, included provisions:

  • prohibiting the employee from competing with the employer in any and all lines of business—even those not handled by the employee during his employment;
  • prohibiting contact between a former employee and all of the employer's customers—even those with whom he had no direct interactions; and
  • defining "confidential information" to include all information regarding the "business or affairs of the Company" and its affiliates.

Rejection of this last item is likely to be the most surprising—and troubling—to Illinois employers. Confidentiality provisions covering all information regarding an employer's business are common, especially when coupled with a carve-out for allowing disclosure of information that "becomes generally known to and available for use by the public." The provision at issue in AssuredPartners fit this description, stating in pertinent part:

"[The] Executive will not disclose . . . any Confidential Information without the Board's written consent, unless and to the extent that the Confidential Information, (i) becomes generally known to and available for use by the public other than as a result of Executive's acts or omissions to act or (ii) is required to be disclosed pursuant to any applicable law or court order."

The court deemed this confidentiality provision to be overly broad and refused to modify it—which it had the power to do under Illinois law. The court explained its refusal to modify or enforce the provision by stating that "a great deal of information that is not 'generally' known to the public does not merit protection under a confidentiality provision."

While the result in cases of this type tend to be driven by their specific facts, this pronouncement by the Illinois Appellate Court is also likely to be cited against Illinois employers seeking to enforce provisions of similar breadth.