U.S. District Court Dismisses Breach of Contract, Finding Noncompete Clause Improper

Daniel Dumrauf was a director with Medix Staffing Solutions Inc., a Chicago-based staffing agency. Dumrauf, who worked at Medix’s Scottsdale, AZ, office, had an employment agreement containing a noncompete clause that restricted him from any affiliation “with the ownership, management, operation or control” of any business in competition with Medix either directly or indirectly.

The noncompete clause had an 18-month lifespan and covered a 50-mile radius.

On Aug. 10, 2017, he resigned from his position with Medix and informed the company he would be taking a position with ProLink, a direct competitor of Medix. In his resignation correspondence, Dumrauf noted that 90% of his activity with ProLink would be done in Ohio and Kentucky.

ProLink also has an office in Phoenix, which is less than 50 miles from Medix’s Scottsdale office.

Medix filed a breach of contract complaint against Dumrauf in the U.S. District Court for the Northern District of Illinois in Chicago for breach of the noncompete clause.

The district court judge found that under Illinois law, the covenant was improper. The court ruled that the covenant was overly broad because it barred him from taking positions with competitors that extended far beyond roles similar to his at Medix.

In its opinion, the court stated the covenant prevented Dumrauf from taking any number of plausible roles with another industry player, no matter how far from competition with Medix.

Medix argued the restriction was appropriately limited by the specific language of “in any manner with the ownership, management, operation or control.”

The court rejected Medix’s contention, stating that the unambiguous meaning of a covenant in its entirety indicated Dumrauf may not work for any company in the same business as Medix, no matter what the capacity.

The court said the covenant was overly broad as there are numerous positions that could fit under this description that are noncompetitive. Importantly, the court noted this was such an “extreme case” where dismissal pursuant to a motion to dismiss was appropriate because there was “no factual scenario under which it would be reasonable.”

The court also rejected Medix’s plea to modify the noncompete clause rather than completely invalidate the covenant. The court relied on Illinois law that encourages courts to refuse to modify a noncompete right of provisions that are so broad as to the complete ban on competition.

Accordingly, the Northern District of Illinois affirmed the dismissal. The court also found that an opportunity to amend Medix’s complaint would be futile.

Medix Staffing Solutions, Inc. v. Dumrauf, No. 1:2017 cv 06648 (N.D. Ill. 2018).

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