Legal Question in Intellectual Property in California

Re: Non-Compete Contract Validity

Your question raises several interesting questions, one of which is whether it should be answered by California lawyers or Illinois lawyers. Here are some general thoughts from a California lawyer.

First, the general validity of post-hire agreements tightening the terms of employment has been questioned in the courts. The attack is based on lack of a new, valid consideration on the part of the employee. If you had a contract of employment for a given term, the new agreement would lack consideration. It's like raising the rent in the middle of a long-term lease. If your employment is "at will," the employer can probably impose tougher standards on you as a condition of continued employment. However, these after-the-fact terms-of-employment modification agreements are disfavored and courts tend to look for ways not the enforce them harshly.

Next, the clause you cite is a strange mixture. It is primarily a choice of law clause (Illinois law applies), but hints at forum selection as well (choice of jurisdiction for any suit) by suggesting that the contract is to be performed in Illinois. Place of performance of a contract is a significant factor in determining what court has jurisdiction. I'm not saying this clause would necessarily give Illinois courts the right to try your case if you breached the agreement in California, but they would have an argument.

Finally, if California law applied, whether trial were in a state court of either California or Illinois or in a Federal court, two legal principles would govern: (1) you have a right to pursue your occupation or trade despite any contract to the contrary, and the contract is void to the extent it forbids you to do so. (2) You cannot misappropriate your former employer's trade secrets -- and customer information is a species of trade secret to the extent it is to any degree non-obvious. Information is obvious if published in things like phone books or common trade directories, but anyone who has been in sales management is going to have much more specialized knowledge of customers, and to a large degree that is the employer's property even if you developed it while employed, and you at least in theory can't use it. I don't know to what extent Illinois law follows California's.

If you sign the agreement and then violate it, the employer may try to sue you in Illinois, in California, or in a Federal court in either state.

Re: Non-Compete Contract Validity

If you intend to take the other job, then it would be foolish to sign a non-compete agreement "going out the back door" with your former employer. On the question of which law governs, the document states Illinois and your company is located in Illinois, therefore, having significant contact with that state. Without any doubt, Illinois law would govern the terms of the non-compete agreement.

Re: Non-Compete Contract Validity

Mr. Donner's article is a very good statement of the law. I believe Mr. Whipple misses the point of the question.

It seems to me that the employer intentionally chose the law of a forum that allows non-compete agreements. By signing the document, the employee agrees to the law of that forum. However, California courts will not enforce a contract clause that violates public policy.

Thus, if a dispute made it into court, the outcome would likely be determined by which state's court made the decision. File suit in California, and the clause is out. If the employer files in Illinois, then the clause is upheld. This situation results in a race to the courthouse - the employee who wants to compete with the employer in violation of the agreement must file for declaratory judgment in California, before the employer can file in Illinois.

Re: Non-Compete Contract Validity

Parties to a contract may choose the state and/or venue with jurisdiction over the contract, so, yes, it is legal for the contract to state that Illinois law governs. And, if you sign such an agreement, you are bound by that choice.

Whether that disadvantages you in any particular instance is another question, and you should consult an attorney to discuss your situation.

Re: Non-Compete Contract Validity

See California Business and Professions Code Section 16600. See my article http://www.donnerlaw.com/new_page_5.htm

for information.

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