LKQ Corp. v. Shipman - Executive Noncompetes and Confidentiality

Many states, Illinois included, have implemented significant restrictions on non-compete and restrictive covenants in employment, generally. In the Land of Lincoln, new legislation went into effect this year which proactively bans many forms of non-compete agreements, while it has also added a breadth of regulatory barriers to required to include types of restrictive covenants on any employee. Notably, these requirements were not retroactive and therefore, have no bearing on employment agreements entered into prior to January 1, 2022. 

LKQ Corporation and Keystone Automotive Industries, Inc. filed suit earlier this month against Christopher Shipman, a former Senior Manager who served as Territory Director for LKQ’s mobile services division. Shipman’s former employer is seeking Injunctive Relief and Monetary Damages for alleged violations of his employment agreement based on confidentiality, non-competition, non-solicitation, and restricted stock association agreements. 

In April 2022, Shipman resigned his position within LKQ, during which time, he was a senior executive within the company. Not only did he join one of the company’s direct competitors, he also began to solicit his previous employer’s customers and employees, for services and employment, respectively. 

Language from the contract 

The Complaint outlines several pertinent parts of the employment agreement which detail the provisions being used to bind Shipman to the restrictive covenants. 

Shipman was hired originally in 2019 as an Operations Manager, and in 2020 signed an updated employment agreement, reading (in pertinent part): 

“[ . . .] shall not, and agrees to cause its Affiliates (as defined below) not to, use for personal benefit, disclose, communicate or divulge, or use for the direct or indirect benefit of any other person, firm, association, partnership, corporation or other entity (other than LKQ) the Confidential Information. All Confidential Information shall be the sole property of LKQ, and Confidant hereby assigns to LKQ any rights it has or may acquire in such Confidential Information, by whatever means.”

While other aspects are mentioned in the Complaint as well, much of the language elsewhere seems to be largely straightforward. The reality is that prior to Illinois’ new laws, the non-compete and similar types of restrictions for an executive were largely acceptable, both by statute and by the common law. However, this provision about non-disclosure is especially noteworthy. Even as states expand their restrictions of non-compete agreements, this case potentially provides for an important frame for how companies may be able to include restrictions within their employment agreements. What good does hiring a competitor’s executive do, if they have no authority to talk about the industry?

Venue

It is also interesting to note that this case exists in federal court, it was not filed at the state level. The Complaint cited choice-of-venue provisions in the employment agreement which states that any claims shall arise in federal court. 

Given that this case seems to involve largely intra-state actors enforcing state law, this would surely seem to be a classic case for state courts. While it is yet to be seen whether Mr. Shipman will attempt to remove the case to state courts, this may add an additional intriguing layer to the litigation. 

Claims

LKQ alleged four separate breach of contracts counts in its Complaint, as well as one county of unjust enrichment. In its breach of contract claims, LKQ notably includes factors such as that Shipman received good and valuable consideration in exchange for entering into the agreement, and that his decision to enter said agreements was a material inducement to LKQ entering into said agreements. 

It is true, that even prior to statutory reforms in these sorts of areas, the judiciary has occasionally armed itself with policy arguments to justify deeming restrictive covenants as unenforceable. Generally speaking though, the more senior the executive, the more enforceable. Likewise, the more compelling the consideration, the more enforceable. 

Conclusion

While this case will not be governed by the new Illinois non-compete or restrictive covenant laws which went into effect on the first of 2022, this case could provide important insight for companies and employees alike as to their ability to enter into other forms of restrictive covenants without running afoul of the law. Even in states which have recently banned non-compete agreements outright, like California, restricted stock association and confidentiality agreements may both effectively amount to similar sorts of barriers in certain situations. 

While changes to non-compete laws are likely to free the air for many low-income workers, there may still be ways for senior executives and their employers to negotiate reasonable restrictions that protect the rights of everybody involved.  

Read the entire Complaint here. 

Jake A. Leahy