Court Opinion

ID: 9518482
Source: CourtListenerOpinion
Date Created: 2023-08-07 00:54:19.15908+00
Date Added: 2024-06-11T12:29:18.128187
License: Public Domain

JUSTICE RARICK, dissenting: The law has changed since Schumann-Heink v. Folsom, 328 Ill. 321 (1927), the case cited by the majority at the outset of its substantive analysis. Under Illinois law, contracts in general restraint of trade are now ordinarily held to be void. Canfield v. Spear, 44 Ill. 2d 49, 50 (1969); Health Professionals, Ltd. v. Johnson, 339 Ill. App. 3d 1021, 1029 (2003). Exceptions exist in the employment context. Under certain circumstances, an employer may impose contractual restrictions on where and when an employee may work after he leaves the employer’s payroll. Such restrictive covenants, however, are not favored. They must be strictly construed and will be enforced only if their impact on the parties to the agreement and the public is reasonable. See Szabo Food Service, Inc. v. County of Cook, 160 Ill. App. 3d 845, 848 (1987); Marwaha v. Woodridge Clinic, S.C., 339 Ill. App. 3d 291, 294 (2003). The no-hire provision at issue in this case is tantamount to a restrictive employment covenant, and its validity must be judged by the same standards. To assess whether covenants restricting employment should be upheld, the courts have fashioned specific criteria. The time limit and geographic scope of the restriction must he reasonable, trade secrets or confidential information must be involved, and the restriction must be reasonably necessary for the protection of a legitimate business interest. Image Supplies, Inc. v. Hilmert, 71 Ill. App. 3d 710, 712-13 (1979). The foregoing conditions are sometimes satisfied in cases involving the performance of professional services or where a person’s employment has enabled him to obtain technical or trade information or customer lists to which he would not otherwise have had access. See Restatement (Second) of Contracts § 188, Comment g, at 45-46 (1981). The situation here, however, does not involve such circumstances. The affected employees in this case are truck drivers who possess no unique characteristics that differentiate them from the general pool of truck drivers. As far as we can tell, they acquire no specialized skill or training from plaintiff and possess no trade secrets, customer lists or confidential business information belonging to plaintiff. There is no indication that the supply of drivers is limited. If one of the drivers leaves plaintiffs employ, plaintiff can therefore simply hire another to replace him. For plaintiff, the only consequence of losing one of its drivers to a company like defendant’s is that plaintiff will no longer be able to profit from that driver’s labor. The wages earned by the driver will now all be kept by the driver. Plaintiff may consider this unfair, considering that it was responsible for making the initial arrangements that enabled the driver to work for defendant. The free market, however, provides plaintiff with a complete remedy. If it does not wish its drivers to defect to its clients, it can do what other private employers must do to retain employees: it can pay them more. Judicial remedies are unnecessary and inappropriate. The majority dismisses the harmful effects of plaintiffs no-hire agreement as “merely speculative.” I doubt that view would be shared by anyone in the trucking industry. Defendant may have hired one of plaintiff’s former drivers, but now that our court has upheld the $15,000 liquidated damages provision in the no-hire agreement, neither defendant nor any other client of plaintiffs will ever hire another. The United States Department of Labor, Bureau of Labor Statistics, National Compensation Survey, issued in June of 2003, reports at page 9 that the mean hourly earnings of truck drivers is $14.20 and that the mean number of weekly hours worked is 40.2. Those figures work out to $29,683.68 per year. The $15,000 liquidated damages provision is therefore equivalent to more than half a year’s wages for the average driver. Given that plaintiffs drivers are not claimed to possess any special knowledge or skill and that qualified drivers are not alleged to be in short supply, no rational successor employer would risk incurring such a penalty. That is not speculation. It is basic dollars and cents. Although defendant apparently elected not to challenge the validity of the liquidated damages clause when it appealed to the appellate court, the precedential effect of today’s opinion and the interests of maintaining a sound and consistent body of case law suggest that we put aside considerations of waiver and address the issue on the merits. The test for determining whether a liquidated damages clause is valid as such or void as a penalty is stated in section 356 of the Restatement (Second) of Contracts (1981): “(1) Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. A term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty.” See Penske Truck Leasing Co. v. Chemetco, Inc., 311 Ill. App. 3d 447, 454 (2000); Pav-Saver Corp. v. Vasso Corp., 143 Ill. App. 3d 1013, 1018-19 (1986). In H&M Driver Leasing Services, Unlimited, Inc. v. Champion International Corp., 181 Ill. App. 3d 28, 31 (1989), the appellate court considered a liquidated damages provision which plaintiff attempted to enforce under circumstances directly analogous to those present here. It determined that the provision constituted an unenforceable penalty and that plaintiff was limited to recovering only the actual damages it could prove. The provision struck down in H&M Driver Leasing Services, Unlimited, Inc. v. Champion International Corporation called for a payment of $10,000. Given the similarities between that case and this one, it is difficult for me to see how we can justify upholding the liquidated damages provision here, which is 50% greater. The contract in H&M Driver Leasing Services, Unlimited, Inc. v. Champion International Corp. did allow plaintiff to recover actual damages as well as liquidated damages. Here liquidated damages replace actual damages. In my view, however, the distinction is not dispositive. Although the availability of actual damages in addition to liquidated damages highlights the penal nature of the liquidated damages provision struck down in H&M Driver Leasing Services, Unlimited, Inc. v. Champion International Corp., that provision could not have survived scrutiny under the governing standards even without the actual damages remedy. The liquidated damages remedy plaintiff attempted to enforce in H&M Driver Leasing Services, Unlimited, Inc. v. Champion International Corp. suffered from two fundamental problems. First, it bore no discernible relationship to any anticipated or actual loss incurred by plaintiff. Second, there is nothing in the case, as far as I can tell, suggesting that proof of plaintiffs actual loss would have been difficult. The same is true of the present case. When assessing whether the amount fixed as liquidated damages reasonably approximates anticipated losses, courts look to when the parties made the contract, not to when the contract was breached. Restatement (Second) of Contracts § 356, Comment b, at 158 (1981). At the time the parties made this contract, they could not possibly have anticipated that a decision by defendant to hire one of plaintiffs drivers would have inflicted $15,000 worth of damages on plaintiffs business. In terms of anticipated or actual loss, only two categories of damages might be relevant here. One is lost revenues. The other is the expense of training drivers and placing them with clients. With respect to lost revenues, the scant materials before us suggest that plaintiffs profits were derived from the differential between what it charged defendant for a driver’s services and what it actually paid the driver. Considering the median earnings of truck drivers, generating $15,000 from a driver’s labor would have taken plaintiff time. Given the sporadic and irregular work hours this driver claims he was assigned, it seems likely that it would have taken considerable time. Plaintiff could therefore claim expected lost revenues of $15,000 only if it had a reasonable expectation that this driver or a similarly compensated replacement driver would continue working for it for a sufficiently long period. The problem is plaintiff had no reasonable expectation that the driver would continue to work for it at all. Plaintiff likewise had no reasonable expectation that defendant would continue to use this driver or a replacement driver supplied by plaintiff. The driver was an at-will employee. He was free to quit at any time, and defendant was free to hire anyone it wanted to take his place. Defendant had no obligation to continue to use drivers provided by plaintiff. The notion that hiring the driver away from plaintiff would cause plaintiff to lose a $15,000 revenue stream is therefore entirely speculative. With respect to lost training and placement expenses, plaintiffs claim is equally tenuous. At the time the driver left plaintiff to work for defendant, he had only been on plaintiffs payroll for one month. There is nothing before us suggesting that plaintiff expended any resources during that time to train or equip him. Although plaintiff presumably processed some paperwork in connection with the driver’s employment, it makes no claim that it was not paid in full by defendant for the driver’s services. Assuming that plaintiff acted rationally, the differential between what it paid the driver and what it charged defendant for his services would have to be sufficient to enable plaintiff to recover its costs as they were incurred or within a short time thereafter. Rapid, if not immediate, cost recovery was necessary because plaintiff had no assurance that the driver would remain in its employ. Again, he was an at-will employee, free to quit at any time and for any reason. Whether he worked a year, a month, or even just a day, neither he nor defendant had any obligation to reimburse plaintiff for any of its overhead expenses. Accordingly, unless plaintiff recouped its expenses quickly, it risked not being able to recoup those expenses at all. I see no possible reason why plaintiff would have taken such a risk. To the contrary, it seems likely to me that plaintiff had already recovered all of its expenses attributable to the driver by the time the driver went to work for defendant. Wholly aside from those considerations, this is not a situation where fixing liquidated damages is appropriate on the grounds that proof of actual loss would be difficult. Plaintiff has not explained and I cannot see why proof of actual damages would be any more troublesome here than in any other contract action. If plaintiff did invest resources to train the driver hired by defendant, that is something that can surely be quantified. If it lost a stream of future income, that can surely be quantified as well. For the foregoing reasons, I would hold that the liquidated damages provision in the no-hire agreement cannot be sustained under Illinois law. “The central objective behind the system of contract remedies is compensatory, not punitive.” Restatement (Second) of Contracts § 356, Comment a, at 157 (1981). This liquidated damages provision is simply a penalty. “Punishment of a promisor for having broken his promise has no justification on either economic or other grounds and a term providing such a penalty is unenforceable on grounds of public policy.” Restatement (Second) of Contracts § 356, Comment a, at 157 (1981). Unlike Justice Thomas, I therefore do not believe that the driver’s knowledge of the no-hire provision is dispositive. Whether the driver knew of the provision or not, the contractual liquidated damages remedy is void. Even if I agreed with Justice Thomas’ view that the validity of the no-hire provision turned on whether it was disclosed to the driver at the time he was hired, I could not concur in the result reached by the majority. In Justice Thomas’ view, entry of judgment in favor of plaintiff was appropriate in this case because nothing in the record shows that the driver was unaware of the no-hire provision when he accepted the job from plaintiff. Concern over the absence of evidentiary support for defendant’s position is also reflected in the majority’s opinion. What my colleagues have all failed to take into account is that we are still at the pleadings stage. There is no evidentiary record. The dispute before us arose in the context of a motion for judgment on the pleadings pursuant to section 2 — 615 of the Code of Civil Procedure (735 ILCS 5/2— 615 (West 2000)). A section 2 — 615 motion for judgment on the pleadings is proper only where there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. M.A.K. v. Rush-Presbyterian-St. Luke’s Medical Center, 198 Ill. 2d 249, 255 (2001). When ruling upon a motion for judgment on the pleadings, a court may consider only (1) facts apparent from the face of the pleadings, (2) matters subject to judicial notice, and (3) judicial admissions in the record. Extrinsic evidence may not be considered. M.A.K., 198 Ill. 2d at 264. Because extrinsic evidence may not be considered, the defendant in this case cannot be faulted for having failed to produce a more detailed factual record regarding what the driver knew and when he knew it. What matters at this stage is that nothing apparent from the face of the pleadings, no matters subject to judicial notice, and no judicial admissions made by defendant in the pleadings preclude the possibility that the driver was unaware of the no-hire clause. That being so, we cannot yet say that there is no genuine issue of material fact and that plaintiff is entitled to judgment as a matter of law. The majority makes one point I do agree with. Whether an agreement is contrary to public policy depends on the particular facts and circumstances of the case. O’Hara v. Ahlgren, Blumenfeld & Kempster, 127 Ill. 2d 333, 341-42 (1989). Defendant had the burden of establishing a public policy defense, and it should have been given the opportunity to prove the relevant facts and circumstances. Through its summary ruling in favor of plaintiff based on the pleadings, the circuit court improperly deprived defendant of that opportunity. Its judgment should not have been affirmed by the appellate court. I would therefore reverse the judgments of the circuit and appellate courts and remand for further proceedings.