My company has been served with a subpoena. What should I do?

Just because you or your company has been served with a subpoena does not mean that you have done something wrong or that you will be sued.

Often it simply means that you or the company may have information or documents that relate to a dispute between two or more other parties. Sometimes, however, a subpoena can be a precursor to bigger problems.

Regardless, don’t ignore it. Failure to appear at the stated time or otherwise respond to the subpoena could subject you or your company to punishment by the court.

Smart Business spoke with Julie Johnston-Ahlen, of counsel at Novack and Macey LLP, to learn more about the best way to respond to a subpoena.

What is a subpoena?

A subpoena is a writ, or written order, issued by a court, administrative body or attorney, that commands a person or entity to appear and testify, to produce documents or both. The subpoena should clearly state what it is seeking and when and where you must respond, so review the subpoena and any attached documents carefully.

Should an attorney be consulted before responding to a subpoena?

It is always a good idea to seek legal advice before responding to a subpoena. Moreover, there are certain circumstances in which you should almost certainly retain legal counsel to assist you. For instance:

■  You or your company might be subject to liability related to the litigation. Before you respond to a subpoena, you need to make sure you understand the subject matter of the litigation or proceeding so that you can determine why you or your company is being subpoenaed. This may require reviewing the documents that have been filed in the case, seeking information from the parties in the case, or both. If there is any risk that you or your company might be subject to liability, you should retain counsel.

■  The scope of the subpoena is very broad, and it will be costly to comply. Often when attorneys issue subpoenas, they ask for more documents than they actually need. In this case, you can and should ask the attorney to narrow the scope of the documents requested. If he or she won’t, you can retain counsel to serve objections or file an appropriate motion with the court. But don’t delay. In some jurisdictions you only have a short period of time to take action with respect to the scope of the subpoena.

■  The subpoena is seeking information that is privileged, confidential or competitively sensitive. Typically, private conversations with lawyers are not subject to disclosure pursuant to a subpoena. In addition, sometimes information that is confidential, proprietary or competitively sensitive can be protected from disclosure, or can be disclosed pursuant to a protective order issued by the court. If the subpoena is seeking this type of information, you should retain counsel to assist you.

■  Complying might open you or your company up to liability unrelated to the litigation. Sometimes a subpoena will request documents or information that, by law or by contract, you are not permitted to release, or are not permitted to release without permission from another person or entity. For example, you might be subject to Securities and Exchange Commission regulations or Health Insurance Portability and Accountability Act requirements, or bound by a contract where you agreed to keep certain information private. In this case, you should seek legal advice.

■  The subpoena may be invalid. Perhaps service was improper, required fees were not paid, the subpoena commands you to produce documents or appear too far away, or the court issuing the subpoena does not have the authority to compel you to respond. If so, you should consult counsel before responding.

■  You do not understand what the subpoena is requesting. In this case, you should consult with counsel. Your attorney is likely to understand what is being requested, but if not, he or she can consult with the party that issued the subpoena to better understand what is being sought. ●

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Misclassifying employees can lead to significant penalties, lawsuits

In an effort to save on labor costs and reduce employee headcounts, businesses have looked to outside independent contractors to perform some of the services once executed by employees.

Some of the cost savings realized by using outsourced workers include not having to pay taxes, not complying with minimum wage and overtime requirements, and not having to provide insurance or other benefits.

This practice has raised concerns at the IRS and Department of Labor (DOL).

The IRS is interested in maximizing tax revenue, while the DOL wants to ensure compliance with employment laws such as the Fair Labor Standards Act (FLSA), which sets forth the minimum wage, overtime requirements and other employee protections.

This use of outsourced workers also catches the attention of class action plaintiff lawyers when companies classify large blocks of people as independent contractors instead of employees.

All of this has led to an explosion of FLSA claims in the past 10 years, with some years seeing the number of FLSA lawsuits increase more than 20 percent over the prior year.

Smart Business spoke with Steve Ciszewski, partner at Novack and Macey LLP, about the misclassification of workers and the risks it creates.

What are the signs that a company might have misclassified employees as independent contractors?

The signs of misclassification depend on the context in which the question arises.

When the question is posed for tax purposes, the IRS has adopted an extensive analysis to determine the right classification. There is a specific tax form  — SS-8 — that is intended to measure behavioral control, financial control and the general relationship between the parties. The general concept is to determine whether the company or the worker controls the working environment.

For purposes of the FLSA, the DOL has developed what it calls an economic realities analysis, which consists of six factors that attempt to determine whether, as a matter of economic reality, the individual is more like an employee or more like an independent contractor.

Many courts interpreting the FLSA have adopted this economic realities analysis.

It’s important to note that each state may have its own interpretation of its state tax and employment laws.

What are the consequences if a business misclassifies an employee?

The company could face a large class action suit by the misclassified employees.

Depending on the number of people involved, there could be significant damage exposure consisting of the amounts that should have been paid as well as statutory damages equal to 100 percent of the amount that should have been paid and attorney fees.

In addition, the government will be looking to the employer for make-up payments and penalties on income taxes and contributions to Social Security, Medicare, the federal unemployment tax, etc.

How can businesses best protect themselves against the risks of misclassification?

Any decision to classify a worker as an independent contractor should be done carefully and only after a close analysis of the specific facts surrounding the relationship.

In some cases, this will be a very easy analysis that can be performed by in-house human resources staff. This type of review would be most appropriate when there are only a small number of people whose classifications are in question or when the relevant factors point heavily in one direction.

Other cases might require a detailed legal analysis from in-house or outside counsel.

This would be most appropriate when many people are in question or when it is a close call as to whether those involved are independent contractors or employees. ●

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The differences between employees and independent contractors

A driver making a delivery for your company is involved in a car accident that seriously injures someone, resulting in a lawsuit against your company.

Will your company have to pay?

This is a complicated subject with numerous exceptions. Usually, while an employer can be held liable for acts committed by an employee that fall within the scope of employment, a business typically is not responsible for the conduct of an independent contractor.

Smart Business spoke with Elizabeth Wolicki, an associate at Novack and Macey LLP, about proper classification of independent contractors.

How can businesses protect themselves and limit their liability?

First, it is important to be aware that merely labeling a relationship with somebody who is providing services for your company as that of an independent contractor is not enough.

Whether a worker is an independent contractor or employee depends on how the relationship between the parties actually works in practice.

To determine the true classification of a worker for liability purposes, courts consider a variety of factors.

These include an employer’s right to control the manner in which the work is performed; the nature of the work performed in relation to the general business of the employer; the manner of hiring; the right to discharge the worker; the character of the supervision of work done; the kind of occupation; the nature of the skill required, including whether the necessary skills are obtained in the workplace; the responsibility for the cost of operation, such as equipment, supplies, fees, licenses; whether the worker receives paychecks or benefits from the employer; whether taxes are deducted from the payment received from the employer; and whether the worker wears a uniform with the company name and logo.

Of these factors, the most important is whether the business has the right to control the manner of the work, regardless of whether the business actually exercises that right.

How would the courts view the worker in the example?

In the example of the delivery truck driver, a court might look at who owns the truck; who is responsible for costs associated with the truck, such as insurance and maintenance; if the company requires its logo to be on the truck; whether the driver is wearing an outfit with the company logo; whether the driver is free to contract with other companies; and whether the driver sets his own schedule.

The court may also examine written documentation between the truck driver and the company, such as a contract or a drivers’ manual, to see whether these documents allow for control by the company over the driver.

How can businesses ensure workers are classified as independent contractors?

If a business wishes to have true independent contractors and limit its potential liability for their actions, then it needs to take steps to ensure that legally the worker will be considered an independent contractor.

For example, the business can allow workers to establish their own schedules, such as hours worked and whether or not to accept certain assignments; require workers to provide their own equipment without too many specifications as to the type of equipment; require that the worker cover any costs associated with the maintenance of that equipment; have third parties pay the worker directly; and not outfit the worker in company attire.

While it is not a dispositive factor, the employer should make sure that the worker’s contract refers to the worker as an independent contractor.

What compromises will businesses need to make to utilize independent contractors?

A downside to having independent contractors and not employees is that, for a worker to be considered an independent contractor, the business must give up a large amount of control over the worker. You need to compare the risks of having workers doing things for your business that you do not control to the risks of having employees under your control subject you to liability for their actions. ●

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Discovery of electronically stored information poses significant risks

In a lawsuit’s discovery phase, each party must turn over to its opponent documents and electronically stored information (ESI) that could be used as evidence.

Discovery of ESI poses significant risks for unwary businesses. That’s because the obligation to preserve the ESI that is potentially relevant to a lawsuit can arise well before the lawsuit is filed.

“The first time that management thinks about ESI preservation should not be after one party to a dispute runs to court,” says Andrew P. Shelby, a litigation associate at Novack and Macey LLP.

Smart Business spoke with Shelby about what businesses should be doing when the duty to preserve is triggered in order to protect themselves from facing substantial consequences.

What is ESI?

ESI is data stored in any electronic medium.

For many businesses, email constitutes the most significant form of ESI. But it is not the only form. Increasingly, businesses’ ESI includes text messages, instant messages and social media. It also includes voice mail, photographs, databases and office documents such as Microsoft Word, PowerPoint and Excel.

Courts trend toward inclusiveness in determining whether data forms constitute ESI. So, as new office platforms and digital-communication formats emerge, they will likely be considered ESI.

What is the duty to preserve ESI and when is it triggered?

The duty to preserve is the obligation to prevent the destruction or alteration of ESI that may be used as evidence in litigation by either party, including a business’s opponent.

In general, the duty to preserve arises when litigation is reasonably anticipated — i.e., when it would be reasonable for a business to foresee that it may either sue or be sued.

What do businesses need to do to comply with the duty to preserve ESI?

Retaining a lawyer experienced in ESI discovery is the first thing that a business should do when anticipating litigation.

With the lawyer’s assistance, the business must then identify the ‘universe’ of ESI potentially relevant to the anticipated litigation. Doing so will involve identifying the custodians of that ESI — e.g., the employees involved in the dispute — and determining where they store ESI.

For example, their ESI could be on the business’s server or in its cloud storage. It could also be on employees’ computers, smartphones or tablets. The business then needs to instruct the custodians to not destroy any ESI that may relate to the litigation. This instruction is typically communicated through a ‘litigation hold’ letter.

The business also should disable any programs that automatically delete ESI on a periodic basis.

What are the consequences of failing to comply?

The worst-case scenario is losing the case automatically as a sanction.

Courts can also impose severe monetary fines. One litigant recently received a fine of almost $1 million.

Nonmonetary sanctions are also possible. For example, the court could instruct the jury to make an inference that the ESI destroyed in violation of the duty to preserve must have harmed the legal position of the party who destroyed it.

What are some steps that a business can take to proactively prevent violations of the duty preserve ESI?

Developing an ESI-preservation plan that is followed when the duty to preserve is triggered can prevent many problems.

The plan should include procedures for identifying custodians, disarming automatic deletion functions and training employees about preserving ESI if they receive a litigation hold letter, among other things. If a business has legal and IT departments, the discovery plan should be a joint effort between them with the help of counsel versed in ESI discovery.

The plan should also require periodic coordination between IT and legal departments about ESI creation, use, storage and deletion so that changes are taken into account. ●

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Commit agreements to writing or risk having no agreement at all

It is always a good idea to commit an agreement to writing, both to avoid disputes and enhance prospects for effective enforcement. But in certain instances, getting a deal memorialized in writing with signatures is more than just smart, it is essential.

“Illinois law provides for a number of situations when the enforceability of an agreement may turn on whether it is reduced to a signed writing,” says Michael A. Weinberg, a partner with the business litigation firm Novack and Macey LLP.

“Contracting parties who have a high level of mutual trust often believe that oral promises will be sufficient, but such confidence can prove fatal if the relationship breaks down, or a good faith dispute arises.”

“Sales of interests in real estate, certain sale of goods contracts, long-term employment contracts and agreements relating to extensions of credit are just some of the spheres of commerce where ‘written contract’ requirements are imposed.”

Smart Business spoke with Weinberg about various types of agreements that need to be in writing.

What contracts must be in written form?

The most familiar collection of laws mandating that certain types of agreements be in writing are those collectively referred to as the statute of frauds.

For example, contracts for the sale of real estate or interests therein are unenforceable if not written and signed by the parties to be bound, as are contracts that cannot be performed within the span of one year. Contracts for the sale of goods in excess of $500 will not be enforceable unless they are in writing and signed by the parties against whom enforcement is sought or their agents.

It should be noted that the various statute of frauds enactments do not say that oral contracts falling within their scope are per se void, but rather that they are voidable and may be unenforceable if contested.

There is no strictly mandated form that writings must take in order to satisfy the statute of frauds. As long as a court can glean the essential terms of the deal, the writing will likely pass muster.

Are the statute of frauds requirements iron clad?

Notwithstanding the seemingly uncompromising language of the statute of frauds acts, there are exceptions to those requirements that will allow an oral contract to be enforced even if the agreement in question falls within a category that normally must be reduced to writing.

Thus, for example, partial performance of certain types of oral contracts can make them enforceable even if the statute of frauds suggests otherwise, as can a long course of commercial dealing.

Must agreements with commercial lenders be in writing?

The Illinois Credit Agreements Act requires that a ‘credit agreement’ — a commitment by a creditor in a commercial context to lend money, extend credit, or delay or forbear repayment — be in writing and signed by the creditor and the borrower.

This has proven to be a trap for many unwary businesses. A borrower may be orally told that a loan has been approved, an extension to repay authorized or a technical default waived, but none of those oral promises are enforceable.

When else might a signed writing be required?

Without attempting to address all such instances, one situation that bears noting relates to amendments to written agreements.

Even where there is no statute prohibiting oral changes to the contract in question, the contract itself may have a provision that expressly requires that amendments be in writing and signed by all parties. The best way to protect yourself is to get everything in writing.  ●

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How to draft enforceable noncompetition agreements

Employers often have their employees sign “noncompetition” agreements as a condition of their employment. These agreements are generally intended to prevent employees from going to work for a competitor and from taking other employees or customers with them. A well-crafted, narrowly tailored noncompetition agreement can achieve these goals.

However, it’s often the case that such agreements are too ambitious. They may be overbroad and declared unenforceable if the employee or a subsequent employer challenges them in litigation.

Shelby L. Drury, of counsel at Novack and Macey LLP, says, “Review your standard noncompetition agreements and make sure they do not contain provisions that have already been declared to be overbroad and unenforceable by Illinois courts.”

Smart Business spoke with Drury about common provisions that courts have held unenforceable and how to draft them better.

Do Illinois courts typically enforce noncompetition agreements?

The courts enforce these agreements only if they are no broader than necessary. Because they operate as partial restraints on trade, Illinois courts carefully examine noncompetition provisions and resolve any doubts as to their validity against enforcing them. The Illinois Supreme Court has held that a noncompetition provision is reasonable only if it is:

  • No greater than necessary to protect the employer’s legitimate business interest.
  • Does not impose undue hardship on the employee. 
  • Is not injurious to the public.  

Even where there is no dispute regarding an employer’s legitimate business interest, a noncompetition provision that is broader than necessary to protect such an interest will be declared invalid.

What are some provisions that Illinois courts have found to be unenforceable?

Illinois courts tend to hold invalid provisions that purport to prohibit an employee from working for a competitor in ‘any capacity.’ Such provisions forbid an employee from becoming an employee of any business that competes with the former employer without regard to the nature of the employee’s new job. Thus, these provisions prevent an employee from working for a competitor even in a noncompetitive capacity. For example, such provisions, interpreted literally would prohibit an executive from going to work for a competitor as a janitor. Courts tend to declare such provisions invalid, even if, under the particular facts of a case, the employee actually was hired in a competitive position. Courts look to the language of the agreement to determine its validity regardless of the particular facts.

Illinois courts are also unlikely to enforce provisions that prohibit an employee from soliciting customers with whom the employee had no direct contact or relationship. While recognizing that employers have a legitimate interest in preventing employees from soliciting customers that the employee developed or formed a relationship with while working for the employer, Illinois courts tend to invalidate provisions that prohibit an employee from soliciting customers without regard to the degree of contact the employee had with such customers during the employment.

Courts also will look at whether the time period and geographic restrictions in a noncompetition agreement are reasonable. Courts are reluctant to enforce provisions that are temporally excessive or extend to geographic locations in which the employer did not do business or that were not actually serviced by the employee.

Won’t the court just enforce a narrower version of the objectionable provision?

Not usually. Courts tend to avoid rewriting overbroad noncompetition provisions. Typically, courts view their job as interpreting the agreement as written, and not rewriting it. This is true even where the agreement says that a court may modify it.

How are these common pitfalls avoided?
The key is to draft provisions that prohibit actual competitive activity. Limit nonsolicitation provisions to customers that the employee had direct contact with or developed during the employment, and make sure that the time and geographic location restrictions are reasonable under the circumstances.

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How to fix a typo or grammatical error in a contract

Rebekah Parker, associate, Novack and Macey LLP

Rebekah Parker, associate, Novack and Macey LLP

Everyone makes mistakes, including lawyers and businesspeople drafting contracts. Usually, a simple typographical or grammatical mistake will not change the meaning of the agreement in a significant way — but what if it does?

“While Illinois courts protect the sanctity of the written word, they also recognize that people make mistakes, and they are willing to reform or rewrite the contract to conform to the parties’ agreement in certain circumstances,” says Rebekah Parker, an associate at Novack and Macey LLP.

Smart Business spoke with Parker about what to do when writing fails to reflect the parties’ agreement.

What is contract reformation?

Contract reformation is an equitable remedy that changes the language of a contract so that it conforms to the agreement actually reached by the parties but not accurately reduced to writing because of a mistake. Contract reformation cannot be used to change the terms of the deal; rather, it merely fixes a mistake so that the writing better expresses the bargain the parties reached.

Can any mistake be reformed?

No. Reformation is most appropriate for scrivener’s or drafting errors, such as erroneous numerical figures, incorrect dates or errant commas that change the meaning of a sentence.

If all contracting parties agree that a mistake has been made, they may — but do not have to — seek court intervention to reform their agreement. Or, they can voluntarily reform the contract themselves. This can be accomplished by, among other things, correcting the language on the original contract and having each party initial the revision; executing a rider to the agreement that identifies and corrects the mistake; or executing a new version of the contract that clearly states that it is intended to reform the parties’ prior agreement.

Courts encourage voluntary reformation and will usually enforce the reformed agreement should a dispute later arise.

What if the parties disagree about whether a mistake was made?

If a mistake advantages one party and disadvantages the other, it is not unusual for them to disagree as to whether a mistake was made. The disadvantaged party may need to bring a legal action for reformation, which can be combined with a claim for breach of contract — even if the breach of contract claim depends upon the contract being reformed. It is important that such a claim be brought as soon as possible after the mistake is discovered, because laches — unreasonable delay accompanied by prejudice — is a common defense to reformation.

The party seeking reformation bears the burden of proof, and it is a heavy one. In Illinois, there is a presumption that a written instrument reflects the true intention of the parties. Overcoming that presumption generally requires ‘clear and convincing evidence’ — a higher burden than the usual preponderance of the evidence standard.
Even if the party seeking to reform a contract fails to meet its heavy burden, it can still succeed on its breach of contract claim if the court finds the agreement to be ambiguous. In that case, the parties can introduce extrinsic evidence of their actual intent, and the court will interpret, rather than reform, the contract following ordinary canons of contract interpretation and applying ordinary standards of proof.

Do you have any advice for avoiding drafting errors in the first place?

Given the difficulty in reforming written contracts, it is vital to ensure that important contracts are mistake-free. Most drafting errors can be avoided by following these three tips: First, be cautious when creating a new contract from an old template. Sometimes stock language conflicts with a term agreed to by the parties.

Second, always have someone review the final draft, such as an outside counsel or businessperson, especially one who was involved in negotiating the deal or whose area of business is impacted by it.

Third, beware of grammar. Several headline-grabbing contract disasters involve something as simple as a misplaced comma. Most people do not know how to use commas properly, so keep sentence structure simple, and avoiding modifying clauses as much as possible.

Rebekah Parker is an associate at Novack and Macey LLP. Reach her at (312) 419-6900 or [email protected]

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How to draft an effective arbitration clause

Courtney D. Tedrowe, commercial litigation partner, Novack and Macey LLP

Courtney D. Tedrowe, commercial litigation partner, Novack and Macey LLP

The purpose of an arbitration clause is to resolve disputes by means of a private proceeding that is generally perceived as quicker and less expensive than the court system. Yet many contracting parties do not fully analyze the arbitration clauses in their contracts, and so do not draft such provisions in a comprehensive and precise manner. These lapses can lead to costly and time-consuming disputes.

“Any party entering into an arbitration agreement, therefore, would be wise to carefully analyze the arbitration clause thoroughly, with a view to ensuring that it will accomplish all of the party’s goals,” says Courtney D. Tedrowe, a commercial litigation partner at Novack and Macey LLP.

Smart Business spoke with Tedrowe about what it takes to draft an effective arbitration clause.

What are the key considerations in drafting an arbitration clause?

Broadly speaking, there are two categories of issues to consider when drafting an arbitration clause. The first of these concerns the extent to which the court will be involved in pre-arbitration and post-arbitration issues. The second category concerns the parameters and procedures of the arbitration proceeding.

Why consider the court’s involvement in pre- and post-arbitration proceedings?

Just because you have an arbitration clause doesn’t mean that you will avoid court proceedings. Not infrequently, a party will oppose the arbitration demand on the grounds that it does not fall within the scope of the arbitration clause. Under the Federal Arbitration Act, courts are required to ensure that the claim is arbitrable. However, the arbitration clause can specify that the arbitrator decides such substantive ‘arbitrability’ issues, effectively limiting the court’s role from the very outset.

The parties may also restrict the court’s involvement in post-arbitration proceedings. Some post-arbitration judicial action is inevitable, since courts, not arbitrators, have the power to reduce the arbitration award to an enforceable judgment and to decide any challenges to the award. Here, the parties can use the arbitration clause to limit the grounds of appeal, further reducing the chances that the award is vacated, and minimizing the risk of lengthy appeals.

How should the arbitration clause be drafted to provide for procedural matters?

Parties can agree to pretty much whatever they want when it come to procedures. Typically, agreements simply select an organization’s rules, such as the American Arbitration Association, JAMS or ADR Systems.

There are two big pitfalls here. First, most organizations have more than one set of rules with sometimes very different deadlines, discovery options and evidentiary rules. When drafting the clause, be sure that you select not just the organization, but the specific set of rules most favorable to the particular situation.
Second, organizations change their rules regularly, meaning parties will likely be bound to use the rules in effect at the time of the dispute, which may have changed.

Can parties modify the applicable rules?

Yes. For example, although the rules of evidence do not typically apply in arbitration, parties may specify that they will apply, or that only certain rules of evidence apply. Parties also have the ability to craft the discovery process to their particular situation. The arbitration clause can set forth, among other things: whether parties may take depositions and, if so, how many; whether documents requests and interrogatories will be allowed and, if so, how many; and the parameters of any other discovery method.
The clause may also deal with the hearing location; pre- and post-arbitration motions, such as motions to dismiss; and the arbitrator’s power to fashion specific remedies.

How much freedom do the parties have to control the arbitrator selection process?

Parties have complete control over who arbitrates their dispute. The specific arbitrator could be identified in the clause, or the clause can set forth the rules by which an arbitrator is selected, either expressly or by selection of a particular organization’s rules.

Courtney D. Tedrowe is a commercial litigation partner at Novack and Macey LLP. Reach him at (312) 419-6900 or [email protected]

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How to negotiate exclusivity provisions in commercial leases

Andrew D. Campbell, Partner, Novack and Macey LLP

Andrew D. Campbell, Partner, Novack and Macey LLP

Although commercial leasing and rental rates are coming back in Chicago, new tenants are still able to negotiate certain benefits from their landlords. Among these benefits are exclusivity provisions, which limit a landlord’s ability to lease space to a tenant’s competitors.

Smart Business spoke with Andrew D. Campbell, a partner at Novack and Macey LLP, about exclusivity provisions.

What is an exclusivity provision?
An exclusivity provision in a lease protects a tenant by prohibiting a landlord from leasing space to others engaged in the same line of business as the tenant. These provisions are especially common in leases for retail tenants, but they can be applied in many contexts.

There are two basic ways to create an exclusivity provision:

1. Expressly identifying the types of businesses to be excluded, or the types of goods that may not be sold in the landlord’s other spaces.

2. Creating an implied exclusivity provision.

An implied exclusivity provision arises when a lease provides that a tenant will have ‘exclusive’ rights — for example, ‘tenant shall have the exclusive right to operate a restaurant with a liquor license.’

Exclusivity provisions restrain trade — are they enforceable?

Yes, exclusivity provisions restrain trade, but this does not render them unenforceable. Courts enforce exclusivity provisions where they do not unreasonably restrain trade. If an exclusivity provision is reasonably necessary for the tenant, reasonable in duration and territorial scope, and does not unduly prejudice the interests of the public, they are generally enforceable.

But because exclusivity provisions restrain trade, some courts construe these provisions strictly.  So, if an exclusivity provision is susceptible to two reasonable interpretations, courts often will choose the interpretation that imposes the least restraint on trade.

What should an exclusivity provision say?

To avoid disputes, exclusivity provisions should be as clear and specific as possible. For instance, suppose a McDonald’s restaurant is leasing space in a mall and it wants an exclusivity provision. A provision that excludes all other ‘fast-food restaurants that sell hamburgers’ would probably be too vague. It leaves questions unanswered such as to what constitutes ‘fast food’ and what it means to ‘sell hamburgers.’

A better limitation would be to specifically describe the types of businesses to be excluded — for example, excluding ‘restaurants that do not have table service and that derive 30 percent or more of their gross sales from the sale of hamburgers.’

An even better limitation would give specific examples of restaurants to be excluded — Burger King, Wendy’s, Five Guys, etc. A catchall provision at the end of this list, such as, ‘all other similar restaurants,’ may also be useful in case a relevant competitor was inadvertently omitted from the list. Although catchall provisions lack specificity, courts generally will apply them, but only to the extent the ‘other’ restaurant is similar to those listed.

What are a tenant’s remedies if a landlord violates an exclusivity provision?

While remedies will vary based on the specific terms in the lease, and the governing state law, tenants’ remedies for violation of an exclusivity provision can include repudiating the lease — that is, walking away from any remaining lease obligations — or suing the landlord for injunctive relief and/or damages. So, a tenant may file a lawsuit seeking to preclude a competitor from opening in the landlord’s space and/or the tenant may seek monetary damages that may have resulted from the opening of the competing store.

To minimize this risk, landlords should be sure to check the exclusivity provisions in other tenants’ leases before signing a new tenant.

Andrew D. Campbell is a partner at Novack and Macey LLP. Reach him at (312) 419-6900 or [email protected]

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How trade secrets are often overlooked when deciding what to protect

Andrew Fleming, Partner, Novack and Macey LLP

Andrew Fleming, Partner, Novack and Macey LLP

When people consider intellectual property (IP) they most often think patent or copyright, which can be very valuable to a business. But, in fact, one form that’s often overlooked is trade secrets.

What constitutes a protectable trade secret varies from state to state, but the gist of what trade-secret law protects is similar in almost every state. A trade secret is any sufficiently valuable, secret information that can be used in the operation of a business to afford an actual or potential economic advantage.

“Given this broad definition, it should come as no surprise that a wide variety of things have been found to constitute trade secrets, including product formulas, data compilations, customer or client lists developed through hard work, manufacturing techniques and some forms of business know-how,” says P. Andrew Fleming, a partner at Novack and Macey LLP. “The point is that many things could be protectable trade secrets if a business took the time to identify and properly protect them. All too often, however, businesses do not do a good job at either.”

Smart Business spoke with Fleming about how your company should be protecting your trade secrets.

How might a company’s trade secrets be vulnerable?

It is hard for a business to protect something unless it knows what it is — a business has to identify its trade secrets before it can protect them. A little common sense goes a long way. Business owners should start by asking a simple question: ‘What does my business do better than the competition that my competition does not know about, and that I do not want them to know about?’

What policies should a company put in place to protect its trade secrets?

The next step is protecting that trade secret. This can be tricky because, as the name implies, a trade secret loses protection when it is no longer secret. Moreover, the law does not protect a trade secret unless its owner takes reasonable steps to keep it secret. Although there is no hard and fast rule, a business should consider:

  • Password-protecting computers containing its secrets.
  • Limiting access to secrets on a ‘need-to-know’ basis.
  • Keeping hard copies of documents containing or describing its secrets under ‘lock and key.’
  • Entering into contracts with its employees that requires those employees to maintain secrecy during employment and after their employment ends.

A business also might consider using reasonable non-compete agreements with employees who know trade secrets to keep them from going to the competition. After all, if a former employee cannot work for a competitor, he or she has little incentive to reveal secrets once employment ends.

How has social media affected a company’s ability to protect its trade secrets?

The explosion of information on the Internet has made it more difficult for businesses to argue information or know-how is sufficiently secret to constitute a trade secret. It is now far easier to find descriptions of techniques, know-how and even customer lists — a point underscored in Sasqua Group, Inc. v. Courtney. There, the defendant allegedly took secret and valuable customer information to her new job, and the plaintiff argued the information was a trade secret. The court acknowledged that the customer information could in the early days, i.e. pre-Internet and pre-social media, have been sufficiently secret, but since virtually all of the allegedly protected information could be found on the Internet, including through social media sites, it no longer qualified.

It is not difficult to imagine other scenarios in which a business could lose trade secrets via the Internet or social media. For example, a disgruntled employee could intentionally post secrets so the otherwise secret information loses its protection. Even a happy employee unwittingly could disclose secrets through careless posting, such as establishing links to all customers on a social media page.

There are no easy answers to such problems, but businesses must remain on guard, take care when creating or posting to social media sites, and educate employees about the pitfalls of using social media.

P. Andrew Fleming is a partner at Novack and Macey LLP. Reach him at (312) 419-6900 or [email protected]


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