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.