Court Opinion

ID: 9518480
Source: CourtListenerOpinion
Date Created: 2023-08-07 00:54:19.148593+00
Date Added: 2024-06-11T12:29:18.123441
License: Public Domain

JUSTICE FREEMAN delivered the opinion of the court: Plaintiff, H&M Commercial Driver Leasing, Inc. (H&M), filed an action for breach of contract against defendant, Fox Valley Containers, Inc. (Fox Valley), in the circuit court of Cook County. The circuit court granted H&M judgment on the pleadings (735 ILCS 5/2— 615(e) (West 2000)), and the appellate court affirmed (No. 1 — 01—2831 (unpublished order under Supreme Court Rule 23)). We granted Fox Valley leave to appeal (177 Ill. 2d R. 315(a)) and now affirm. Background H&M is an Illinois corporation in the business of leasing truck drivers and related personnel. On January 10, 2000, H&M and Fox Valley entered into an agreement in which H&M agreed to furnish Fox Valley licensed truck drivers, and Fox Valley agreed to pay H&M on a per-hour basis for the drivers. The parties’ agreement contains the following provision (hereinafter referred to as paragraph 13), which is the genesis of this lawsuit: “[Fox Valley] agrees that it will not hire any of the drivers and other personnel that [H&M] furnishes to [Fox Valley] for a period one (1) year from the termination date of this Agreement. However, [Fox Valley] may hire any driver and other personnel whose employment with [H&M] terminated at least one year prior to being hired by [Fox Valley]. In the event that [Fox Valley] does hire any driver or other personnel [sic] will be in violation of the terms of this Agreement, then [Fox Valley] shall pay to [H&M] for each driver and other personnel hired in violation of this agreement $15,000 as liquidated damages, plus all costs and expenses, including attorney’s fees, incurred by [H&M] in enforcing the provisions of this Agreement, including injunctive relief. [H&M] and [Fox Valley] agree and acknowledge that the liquidated damages set forth in this paragraph are a reasonable estimate of the damages which would result from a breach of this paragraph, that actual damages from such a breach would be difficult to ascertain, and that the liquidated damages are an alternative to performance and not a penalty.” The parties’ contract length was indefinite until cancelled by either party upon written notice. During the course of the agreement, H&M leased to Fox Valley a truck driver named James Booker. On February 11, 2000, Fox Valley hired Booker as a truck driver. After learning of Booker’s hiring by Fox Valley, H&M filed a complaint for breach of contract in the circuit court. H&M alleged that by hiring Booker, Fox Valley breached paragraph 13 of the parties’ agreement, under which Fox Valley agreed not to hire any of the drivers provided by H&M under the contract for one year following the termination of the contract. H&M sought damages as provided in paragraph 13. Fox Valley moved to dismiss the complaint pursuant to section 2 — 619 of the Code of Civil Procedure (735 ILCS 5/2 — 619 (West 2000)). In the motion, Fox Valley pointed out that Booker did not have a written employment agreement with H&M, Booker terminated his employment with H&M of his own accord, and Booker solicited Fox Valley for new employment. In an affidavit attached to H&M’s motion, Booker averred that his motivation for leaving H&M was the lack of regular work. Fox Valley maintained that H&M’s complaint failed to state a cause of action because paragraph 13 was unenforceable as a matter of law due to the fact that it adversely affected Booker’s right to free employment. The circuit court denied Fox Valley’s motion. Fox Valley then requested certification of the question to the appellate court pursuant to Supreme Court Rule 308. The circuit court denied the request. In its answer, Fox Valley admitted all relevant facts contained in H&M’s complaint. However, Fox Valley denied that it committed any breach of contract. Fox Valley contended that its hiring of Booker did not violate paragraph 13 of the agreement because the paragraph is “violative of public policy as it is a restraint of trade on a third party.” H&M thereafter moved for judgment of the pleadings. The circuit court granted the motion and entered judgment for H&M in the amount of $18,747, inclusive of attorney fees and costs. On appeal, Fox Valley argued that the circuit court erred in finding a breach of contract because the written agreement unreasonably restricted free trade and was thus unenforceable as a matter of public policy. Fox Valley noted that Booker had terminated his employment with H&M of his own accord and had solicited Fox Valley for employment. The appellate court rejected these arguments, holding that paragraph 13 does not violate public policy because it did not unduly place restraints on free trade. Rather, paragraph 13 merely placed restrictions on Fox Valley’s ability to hire drivers from H&M, restrictions to which Fox Valley had agreed. Analysis Fox Valley contends that paragraph 13 acts as a restrictive covenant on third parties without their consent and is thus unenforceable as a matter of public policy. As a result, Fox Valley argues that the circuit court’s entry of judgment on the pleadings, as affirmed by the appellate court, was in error. Judgment on the pleadings is properly entered in instances where no genuine issue of material fact exists 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). Only those facts apparent from the face of the pleadings, matters subject to judicial notice, and judicial admissions in the record may be considered. Moreover all well-pleaded facts and all reasonable inferences from those facts are taken as true. M.A.K., 198 Ill. 2d at 255. On appeal, the reviewing court must determine whether any issues of material fact exist and, if not, whether the movant was, in fact, entitled to judgment as a matter of law. M.A.K., 198 Ill. 2d at 255. The standard of review is de novo. M.A.K., 198 Ill. 2d at 255. Traditionally, this court, in keeping with the principle of freedom of contract, has been reluctant to invoke its power to declare a private contract void as contrary to public policy. We have previously recognized that, in considering the question, “it should be remembered that it is to the interests of the public that persons should not be unnecessarily restricted in their freedom to make their own contracts. Agreements are not held to be void, as being contrary to public policy, unless they be clearly contrary to what the constitution, the statutes or the decisions of the courts have declared to be the public policy or unless they be manifestly injurious to the public welfare.” Schumann-Heink v. Folsom, 328 Ill. 321, 330 (1927). 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). Fox Valley submits that this case is controlled by Szabo Food Service, Inc. v. County of Cook, 160 Ill. App. 3d 845 (1987). There, the plaintiff, Szabo, a food management service, contracted with the defendant, Cook County, to provide it with food managers for the county jail. The contract contained a provision in which the county agreed that it would not hire any of Szabo’s employees for six months after the termination of the contract and would not permit former Szabo employees to be employed within the county. After the contract was terminated, the county entered into a contract with one of Szabo’s rivals, Canteen. Canteen had hired four workers who had previously worked for Szabo, and those four ultimately were assigned to the county jail food operations. Szabo filed suit against the county for breach of contract and sought an injunction to prevent Canteen from employing the four workers in question. The circuit court denied injunctive relief and found the provision to be unenforceable. Szabo, 160 Ill. App. 3d at 846-47. The appellate court affirmed the decision, ruling that the clause was unenforceable because its effect was to restrict the right of Canteen, a corporation not a party to the agreement, to hire former managers of the plaintiff to work for its operations at the jail. Szabo, 160 Ill. App. 3d at 848-49. The court held that the provision created “an unreasonable restriction on the freedom of contract of members of the public (i.e., of persons who are not parties to the contract containing the covenant), and therefore the covenant is not enforceable.” Szabo, 160 Ill. App. 3d at 849. A careful review of Szabo reveals the case is not squarely on point with the case at bar. The contract provision there essentially placed restrictions on the hiring practices of a third company, Canteen, which was not a party to the agreement. In this case, Fox Valley is a party to the contract which contained the provision restricting its ability to hire former H&M employees. We note that in distinguishing Szabo on similar grounds and in upholding the enforceability of paragraph 13, the appellate court in this case relied upon American Food Management, Inc. v. Henson, 105 Ill. App. 3d 141 (1982). There, the plaintiff, American Food, was a corporation which provided food services to facilities such as college dormitories. American Food entered into a contract with the owner of Stevenson Hall in Carbon-dale, Illinois. The parties agreed that Stevenson would not hire American Food employees for a period of one year after the termination of the contract. Meanwhile, American Food employed Wesley Henson while he was a student in Missouri and ultimately offered him a permanent job. The new job required Henson to relocate to Kansas. Henson accepted American Food’s verbal offer and relocated. One week after his move, he received a written contract of employment from American Food. The written contract contained a clause which provided that Henson, upon termination of his job, would not work for any American Food competitor within a 25-mile radius of any dormitory unit at which he had worked for American Food. Henson signed the agreement. Eventually, Henson was transferred to Wilson Hall in Carbon-dale, Illinois. Henson later quit American Food’s employ and found work at Stevenson Hall. American Food sued both Henson and the owner of Stevenson Hall on theories of breach of contract. The circuit court ruled in favor of American Food against both Henson and the owner of Stevenson. American Food Management, 105 Ill. App. 3d at 142-43. The appellate court reversed the finding for American Food with respect to Henson. The court held that the 25-mile restrictive covenant between the two constituted a contract of adhesion because Henson was never told about the provision prior to his relocation to Kansas. American Food Management, 105 Ill. App. 3d at 146-47. Relevant to our discussion here is the court’s treatment of a secondary issue, i.e., the validity of the contractual provision between American Food and the owner of Stevenson Hall. The appellate court first noted that the validity of the provision was never challenged in the circuit court and that, on appeal, the question was raised very vaguely. Nevertheless, the court stated that “[e]ven if the point were not waived for review, having been raised for the first time in this court, the suggestion of ambiguity is not well taken. Wesley Henson being one of the ‘management employees of American Food [sic] Inc.’ at the time the contract expired, there is no doubt as to its application to him.” American Food Management, 105 Ill. App. 3d at 147. The court upheld the circuit court’s order enjoining Stevenson Hall from employing Henson for one year. American Food Management, 105 Ill. App. 3d at 147-48. As noted, the appellate court relied upon American Food Management in this case. We recognize that the pertinent facts in American Food Management are similar to those at issue here. However, we are troubled by the lack of any detailed analysis in American Food Management of the public policy questions these types of cases raise. Indeed, due to the defendant’s waiver of the issue, the court in American Food Management merely applied the provision without any discussion whatsoever of its validity. For that reason, we do not find the case particularly helpful in answering the public policy questions that are before us.1  Although this issue has not been squarely addressed by Illinois courts, the matter has been examined by courts in other jurisdictions. For example, in Heyde Cos. v. Dove Healthcare, 258 Wis. 2d 28, 654 N.W.2d 830 (2002), the Wisconsin Supreme Court held that an employee’s individual right and freedom to contract may not be restricted by a contract between two employers unless the employee is aware of and consents to such a restriction. The case centered on an agreement between Greenbriar Rehabilitation, which furnished physical therapists to nursing home facilities, and Dove Healthcare, a health-care provider that operated nursing homes. The agreement provided that Greenbriar was to place physical therapists at Dove’s Eau Claire facility. The agreement also contained a provision by which Dove agreed not to hire Greenbriar therapists as employees during the duration of the contract and for a period of one year thereafter. Dove eventually terminated the agreement and shortly afterward hired one current and three former Greenbriar employees. Greenbriar filed suit, seeking damages for the breach of contract. Heyde, 258 Wis. 2d at 32, 654 N.W.2d at 832. In assessing the enforceability of the provision, the court first applied a Wisconsin statute which concerned the enforcement of any unreasonable restrictive covenant to the provision at issue. The court found the statute to be applicable because the court construed the provision to be an indirect restrictive covenant. The court stated: “[I]t is clear that the no-hire provision is harsh and oppressive to Greenbriar’s employees and is contrary to public policy. The former Greenbriar employees who were hired by Dove testified that they had no knowledge of the no-hire provision and that Greenbriar did not ask them to sign a non-compete agreement. One of the employees *** testified that she specifically asked Greenbriar whether she would be bound by a non-compete agreement and was told that she would not be subject to such restrictions. *** This court has *** recognized the necessity of consideration in referencing an employee’s decision to sign a covenant not to compete that he or she deems unreasonable.” Heyde, 258 Wis. 2d at 40, 654 N.W.2d at 836. The court further noted that Greenbriar could protect its interest in maintaining its employees by utilizing a valid restrictive covenant in compliance with Wisconsin laws. Wisconsin law required that employees know they are subject to a restrictive covenant and that they consent to such a provision. For this same reason, the court also found the provision to be unenforceable under the common law, notwithstanding the applicability of the Wisconsin statute concerning restrictive covenants. Heyde, 258 Wis. 2d at 42-44, 654 N.W.2d at 837-38. In contrast to Heyde, the Virginia Supreme Court, in Therapy Services, Inc. v. Crystal City Nursing Center, Inc., 239 Va. 385, 389 S.E.2d 710 (1990), upheld the validity of a similar contractual provision. The facts in Crystal City are essentially the same as in the Heyde case, i.e., the provider of physical therapists seeking to prevent nursing home customers from hiring provider’s employees. Crystal City, 239 Va. at 386-87, 389 S.E.2d at 711. The nursing home contended that the provision was unenforceable because it violated public policy in that it affected the rights of third parties without their consent or knowledge. Crystal City, 289 Va. at 387, 389 S.E.2d at 711. The court began its analysis by noting that the provision at issue was neither a covenant not to compete nor a restrictive covenant between an employer and employee. Rather, the court ruled that the provision represents an agreement where “one party agrees to forego the ability to hire certain people who are not parties to the contract. As such, it is a contract in restraint of trade and will be held void as against public policy if it is unreasonable as between the parties or is injurious to the public.” Crystal City, 239 Va. at 388, 389 S.E.2d at 711. The court determined that the restraint was reasonable because it afforded fair protection to the interests of the party favoring it and that it was not so broad as to interfere with the interests of the public. The court held that the provider had a legitimate interest in maintaining professional personnel in its employ — without such a clause the provider would become an “ ‘involuntary and unpaid employment agency.’ ” Crystal City, 239 Va. at 388, 389 S.E.2d at 712. With respect to the interests of the public, the court addressed the employees’ lack of knowledge of the clause in depth: “The right to earn a livelihood is embraced in the constitutional concept of ‘liberty.’ [Citation.] However, this right is conceptually and practically distinct from a claim of a right to specific employment. Neither [the nursing home] nor the trial court has cited any authority for the proposition that individuals have a right to employment by an employer of their choice or by any specific employers. The evidence indicated that in the Northern Virginia area, therapists were in low supply and in high demand and, thus, should they choose to leave Therapy Services’ employ, they could secure like positions in the area. Similarly, there was no adverse impact on the interest of the public at large. The availability of therapists’ services was not diminshed since the affected therapists were not precluded from working in Northern Virginia or any other area. Under these circumstances, we cannot conclude that [the provision] deprived the affected therapists of the ‘right to seek a livelihood’ or that it interfered ‘with the interest of the public.’ [Citation.]” Crystal City, 239 Va. at 389, 389 S.E.2d at 712. As a result, the court upheld the validity of the provision. After considering both opinions, we believe the Virginia Supreme Court provides the most guidance with respect to the case at bar. As an initial matter, we agree with that court that paragraph 13 is neither a covenant not to compete nor a restrictive covenant between employer and employee.2 This is not a case where the employee is arguing that he or she has been foreclosed from employment. In our view, the provision at issue restricted one employer’s ability to hire former employees of the other employer. Thus, as the Virginia Supreme Court recognized, the contract provision acts as a restraint on trade. This court has held that “in determining whether a restraint [on trade] is reasonable it is necessary to consider whether enforcement will be injurious to the public or cause undue hardship to the promisor, and whether the restraint imposed is greater than is necessary to protect the promisee.” Bauer v. Sawyer, 8 Ill. 2d 351, 355 (1956). H&M argues that paragraph 13 is reasonable, as it protects its sole business asset, its drivers, from being hired away by its customers. If customers could hire H&M’s drivers on a permanent basis, then they would no longer need H&M’s services. We agree that this is a legitimate interest and that paragraph 13 affords fair protection to that interest. It is important to note that, under the provision, H&M employees are not restricted from seeking employment as drivers with any employer other than Fox Valley. Fox Valley is not restricted from hiring all H&M employees, just those who had been provided to Fox Valley from H&M. Moreover, Fox Valley is not, under the provision, completely barred from employing H&M’s former employees; rather, Fox Valley must pay H&M the liquidated damages to which it agreed, if it does so within one year of the termination of the contract. We do not believe this restriction is unreasonable. We agree with the Virginia Supreme Court that to conclude otherwise would render H&M nothing more than “ ‘an involuntary and unpaid employment agency.’ ” Crystal City, 239 Va. at 388, 389 S.E.2d at 712. Paragraph 13 prevents clients like Fox Valley from appropriating the value H&M created in the placement of valued truck drivers. In this case, it appears H&M did its job so well that Fox Valley wanted to offer direct employment to driver Booker. With respect to the interests of the public, we do not see an adverse impact on those interests on this record. Nothing in the record suggests that the availability of truck drivers was diminished because the employees were precluded from working in the area. More importantly, Fox Valley did not allege in its answer any facts which so suggest. H&M employees are not unreasonably restricted or otherwise hurt by the no-hire clause in this contract. We acknowledge that the existence of paragraph 13 renders former H&M employees who were placed with Fox Valley potentially less desirable hires for Fox Valley because of the liquidated damages that would result from such a hire. However, such potential harm is, on this record, merely speculative. Booker was, in fact, hired by Fox Valley despite the existence of the clause. We are reluctant to deem a contractual provision an unreasonable or excessive restraint of trade on the basis of mere speculation of harm. In light of the above, we hold that paragraph 13 was not invalid as against public policy. Accordingly, the circuit court did not err in granting H&M’s judgment on the pleadings, as there were no questions of material fact raised by the pleadings. Conclusion The circuit court correctly entered judgment for H&M. We therefore affirm the judgment of the appellate court. Appellate court judgment affirmed.  We also find distinguishable Freund v. E.D.&F. Man International, Inc., 199 F.3d 382 (7th Cir. 1999), another case upon which Fox Valley relies. That case concerned an employment agreement between an employer and an employee. A provision in the contract called for the termination of two employees (who were not parties to the agreement) upon the termination of another employee. The Seventh Circuit Court of Appeals, applying Illinois law, held the provision unenforceable because the hardship imposed on the nonsignees, being fired, was a much greater hardship than being foreclosed from alternative employment. Freund, 199 F.3d at 385. We agree and consider Freund inapposite to the case at bar.   We point out that in Heyde, the majority’s conclusion that the provision constituted an indirect restrictive covenant met with disagreement by both the concurring and dissenting justices. See Heyde, 258 Wis. 2d at 44-46, 654 N.W.2d at 838 (Abrahamson, C.J., concurring); Heyde, 258 Wis. 2d at 47-52, 654 N.W.2d at 839-41 (Sykes, J., dissenting, joined by Bradley, J.).