LEGAL OPINION
This is the legal opinion based on your instructions to me. It is worth noting that I have used Illinois law because your Agreement is to be construed per the laws of Illinois.
Issue
- Whether you can get into an agreement with another company for the provision of technology services (software development) while you are already in another contract with another client for the provision of the same services.
- Whether there are any intellectual property infringements, and what risks are involved when you engage in the manner stated in 1 above.
Analysis of the Issues:
- Issue 1.
The first issue raises concerns in the following areas of contract law: Non-Competition. Accordingly, I shall give my response under this issue in relation to contract law on Non-Competition. First, non-competition clauses are inserted in contracts to ensure the parties to the contract do not engage in business with third parties, which would be competing with the former business. Illinois courts will only enforce a non-compete agreement if it is: ancillary to either a valid contract or relationship; supported by adequate consideration; and it is reasonably necessary to protect the legitimate business interest of the employer.
Notably, the courts will probe the Agreement and ensure that the period for non-competition is no greater than is required to protect a legitimate business interest of the employer/promisee; it does not impose an undue hardship on the employee/promisor and is not injurious to the public.
In your Agreement, there is a non-compete clause in Section 6 of the Agreement. Specifically, Section 6.2 completely captures the non-competition requirement. The Section states that during the duration of the contract and twelve months thereafter, you shall not engage in any business that competes with the Company’s business. Further, Section 6.1 emphasizes this point by stating that you shall not enter into any activity that is inconsistent with your obligations under the Agreement.
Now, when I apply the mentioned provisions of the Agreement to the law, I find that the provisions do not bind you in your decision to offer your services to a different client at the same time. First, your engagement with the Company is that of an independent contractor. Independent contractors, unlike employees, have the right to market their services and to work wherever and whenever they want. It follows; you reserve all the discretion on when and where you contract. Next, a restriction on your engagement with another client would cause undue hardship to you. For instance, the Agreement requires you to avoid engaging your services with other clients within twelve months after the Agreement’s termination. I find this provision to limit your rights as an independent contractor.
Lastly, the Company may claim that they seek to protect their legitimate business interest by limiting your right to engage with another client. The law provides that whether an employer has a legitimate business interest worthy of protection depends on the totality of the circumstances. Accordingly, Illinois courts consider whether: the employer’s customer relationships are near-permanent; the employee acquired confidential information while working for the employer; and the type of activity restriction, its duration, and its geographic scope are appropriately tailored to the employer’s interest. In that light, your relationship with the Company was nowhere near a presumption of permanency, at least. Besides, your services are not really tailored to the Company’s interest. Apparently, you provide standard services for all your clients.
- Issue 2.
The second issue raises concerns about Confidentiality and Non-Disclosure. Accordingly, I shall give my response under this issue in relation to the mentioned areas of law. First, Confidentiality/Non-Disclosure clauses are included in contracts to protect valuable confidential information from being disclosed to any third party. Confidentiality clauses are also included to protect intellectual property rights. Generally, courts cannot enforce a broad confidentiality clause in an agreement. In Assured Partners, Inc. v. Schmitt, the court ruled that certain provisions of an employee’s confidentiality agreement were overly broad and unenforceable, including a requirement that prohibited the employee from sharing any information regarding the “business or affairs of the Company or its affiliates”. In holding the confidentiality provision unenforceable, the court reasoned that even though a piece of information is not generally known to the public, it does not necessarily merit protection under a confidentiality agreement.
Confidentiality agreements (or provisions of confidentiality in Agreements), like restrictive covenants, must pass the test of reasonableness. The Illinois Supreme Court has held that reasonableness is conditioned upon the provisions’ effect on the parties to the contract and the public. Therefore, it is up to the court to determine “whether the restraint imposed is greater than is necessary to protect the promise”.
In your Agreement, there are several provisions relating to confidentiality. Section 1.1 of the Agreement defines what is included in Confidential Information under the Agreement. Notably, confidential information consists of any and all information that belongs to the Company at creation. Further, the Work product (the technological creation) belongs to the Company. Section 1.6 of the Agreement goes ahead to define what “work product” entails. Accordingly, work product includes all intellectual property at any stage of development of the work. Section 9.1(c) permits you to deal with background technology in the manner you like because it is excluded from the limitation in that Section. Section 5.4 provides that you will not be liable for using confidential information you knew of/ had before engaging with the Company.
Now, when I apply the mentioned provisions of the Agreement to the law, I find that the provisions do not bind you in your decision to offer your services to a different client at the same time. In the Agreement, the Company limits the use of Confidential information- which belongs to the Company. The Company also attempts to restrict your intellectual property usage when you start creating the payroll technology. I find that these limitations are valid under the areas of law I mentioned above. However, the Agreement provides you to deal with background technology since it does not form part of the Company’s Confidential information. Besides, you are also permitted from using any information that the Company finds confidential- if you knew of the information before engaging the services of the Company.
My Opinion, In Summary
- I find that you shall not violate any non-compete requirement by providing your services to another client. I premise my opinion on the fact that you are an independent contractor, not an employee, of the Company; limiting your right to proceed with your business would cause undue hardship to you; and you provide standard services to your client.
- I find that you shall not violate any confidentiality/Non-Disclosure/Intellectual property requirement by providing your services to another client. I premise my opinion on the fact that you shall be using background technological information to perform your services with the other client, and you shall not be using any of the Company’s confidential information while performing the said services.
- So, proceed and engage with the other client!
Regards, and all the best!
At Legal writing experts, we would be happy to assist in preparing any legal document you need. We are international lawyers and attorneys with significant experience in legal drafting, Commercial-Corporate practice and consulting. In the last few years, we have successfully undertaken similar assignments for clients from different jurisdictions. If given this opportunity, we will be able to prepare the legal document within the shortest time possible.