Employee Non-Compete

A recent federal court opinion illustrates how noncompete provisions in an employment agreement may not protect a company from aggressive poaching of staff by a competitor under Illinois law (ATC Healthcare Services, Inc. v. RCM Technologies, Inc., 2016 WL 3521883). Our Chicago employee noncompete attorneys followed this case with interest.

Since 2006, healthcare staffing outsourcer ATC had contracted with Chicago Public Schools (CPS) to provide nurses for disabled and special needs students. CPS had the right to terminate the contract at any time. All the nurses assigned to CPS had to sign an employment agreement with ATC providing that they were employees-at-will of ATC only and were barred from working for ATC clients for one year following termination.

In November 2014, while ATC’s contract with CPS was still in effect, CPS solicited new bids for healthcare staffing. CPS selected RCM Technologies Inc., and, according to ATC, began “colluding” with RCM to take over the nurses assigned to CPS.

Even after CPS notified ATC that its contract would not be renewed, ATC was still training and assigning nurses for CPS under its existing contract. Meanwhile, CPS provided RCM with the names and contact information of all ATC employees working in CPS schools. According to ATC’s complaint, RCM began “aggressively soliciting” its nurses, telling them that RCM would be “taking over” their contracts and they must now work for RCM. Allegedly, CPS joined in RCM’s recruiting efforts, calling ATC nurses directly and encouraging them to contact RCM in order to keep their assignments at CPS, even calling the students’ parents.

ATC sued CPS and RCM, alleging that both violated the Illinois Uniform Deceptive Trade Practices Act, the Illinois Consumer Fraud and Deceptive Business Practices Act, and tortiously interfered with ATC’s employment agreements with its nurses. ATC also alleged that CPS breached its contract with ATC, which only allowed CPS to “take over” ATC’s nurses in the event of default. Based in the Chicago area, our employee noncompete lawyers are familiar with these types of claims.

Granting defendants’ motion to dismiss, Northern District of Illinois Judge Edmond E. Chang wrote that under the Deceptive Trade Practices Act, RCM’s alleged communications had not fraudulently disparaged or misrepresented ATC’s services or misrepresented RCM’s own services. “Rather, all RCM attempted to do … was convince ATC’s nurses to leave ATC and join RCM,” which is not prohibited by the Act.

Moreover, ATC failed to sufficiently allege a “likelihood of confusion” necessary to support an action under the Deceptive Business Practices Act. “ATC does not allege that RCM’s actions ever caused confusion about which company was which [or] that RCM ever tried to pass off its services as those of ATC,” Chang wrote.

Cheng also rejected ATC’s tortious interference claim, because its employment contracts with its nurses were terminable at-will and its noncompete clauses were invalid: “Under Illinois law, inducing a third party to cancel an at-will contract does not result in a breach of contract.” ATC had not demonstrated a legitimate, protectable interest in restricting its nurses from working for a competitor like RCM; Its contract with CPS did not guarantee ATC any business from CPS, nor did it preclude CPS from hiring other staffing agencies.

“ATC does not have a legitimate interest in precluding its nurses from working for RCM in order to prevent them from taking ATC’s customers,” Chang wrote. “ATC’s nurses are in the business of providing healthcare services, not in the business of providing staffing services.” As our employee noncompete attorneys are aware, Chicago workers in the healthcare industry may be affected by this ruling. 

Finally, Chang rejected ATC’s claim that CPS breached the implied covenant of good faith and fair dealing by helping RCM “take over” ATC’s nurses, because CPS could terminate the contract at will and use as many or as few ATC nurses as it wished. Nothing in ATC’s contract stated that the nurses’ contact information was confidential or that CPS was obligated to keep the information private.

Judge Chang gave ATC until July 11 to amend its complaint. Our Chicago employee noncompete lawyers believe that the future of this case will be worth following.