Settlement Agreements and Consent Decrees -- 2017



Automated Industrial Machinery, Inc. v. Christofilis   (Ill. App. Ct.)

Illinois courts refuse to enforce restrictive covenants

AIM Inc., a.k.a. Automated Industrial Machinery, Inc., manufactures 2-dimensional and 3-dimensional CNC bending machinery. The company is an active machinery exporter via its two manufacturing facilities in North America and Europe. Founded in 1992 by Constantine Grapsas, AIM Inc. has grown to become the premier CNC bending machine supplier serving customers worldwide.

However, the courts of Illinois have decided to punish Mr. Grapsas for his achievement. The AIM VP of engineering, a company board member, officer, and shareholder, after 13 years decided to quit and began directly competing with AIM, although there was a non-compete agreement in place. AIM filed suit. An Illinois court found the non-compete agreement unenforceable due to lack of adequate consideration since the employee had signed it less than two years before leaving. The result is that manufacturers in Illinois will have to wait for two years before they expose key employees to trade secrets. This does not make manufacturing in the USA more competitive, and the National Association of Manufacturers and other organizations are working to help right this wrong.

AIM appealed the lower court's ruling, and the NAM filed an amicus brief in the Illinois appellate court in support of AIM. Illinois is the only state that imposes a bright-line two year rule for a restrictive covenant, which makes Illinois more expensive, and less attractive, for manufacturers to do business. In each of the states surrounding Illinois, an employer can hire an employee and expose that employee to proprietary trade secrets immediately, confident that the restrictive covenant securing its trade secrets will be enforced.

In an unpublished non-precedential opinion heard without oral argument, the Illinois Appellate Court affirmed the circuit court’s judgment. The Appellate Court acknowledged that there is a possibility that the Illinois Supreme Court would reject a two-year rule in favor of a more fact-specific approach. As a last resort, AIM will now be appealing to the Illinois Supreme Court, but the Court can choose which cases it accepts for review. Hopefully, the Supreme Court will review this important case and employ a fact-specific, totality of the circumstances test when examining a postemployment restrictive covenant.


Related Documents:
NAM amicus brief  (March 22, 2017)

 


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