Posted On: September 5, 2012 by Steven R. Merican

Tax Preparer Waives Choice-Of-Law Argument In NonCompete Clause Appeal

Zabaneh Franchises bought an H&R Block tax preparation franchise. The purchase included “all interest in the employment and noncompetition agreements with H&R Block’s employees.”

Terri Walker had been employed by H&R, but claimed she did not have an employment agreement with Zabaneh. Zabaneh claimed the Terri violated the employment agreement she signed with H&R, and that Zabaneh took over, because within a few months after leaving H&R, Terri (1) started her own tax preparation business; (2) hired H&R employees; (3) solicited H&R customers. So Zabaneh asked the trial court for a preliminary injunction to prevent Terri from doing all those things.

The trial court denied Zabaneh’s request for an injunction against Terri. The trial court refused to enforce the employment contract because it was a “contract of adhesion,” meaning there had not been negotiation of the terms of the contract and the only way Terri could get employment with H&R was to accept the contract as presented. So Zabaneh appealed.

Terri’s employment agreement stated that Missouri law governed the dispute.
But in the trial court, and even in the appeal, Zabaneh primarily argued Illinois law. Nonetheless, in the appeal, Zabaneh claimed that Missouri law governed.

But the Fourth District Illinois Appellate Court disagreed. The appellate court ruled Zabaneh waived its right to argue Missouri law governed because the company “filed a lengthy memorandum of law in support of its motion for a TRO [temporary restraining order] and preliminary injunction in the circuit [trial] court, extensively citing and relying only upon authority from Illinois …” Zabaneh argued that it used Illinois case law only to support “procedural” matters. But the court found just the opposite, and stated Zabaneh used Illinois authority to support “‘substantive issues’ relating to the enforceability of the covenants.” The appellate court disregarded Zabaneh’s Missouri authorities and relied on Illinois law.

So Zabaneh lost the battle over which law governed. But the company won the appeal anyway. The appellate court ruled that the noncompete employment covenants were enforceable. The case was returned to the trial court to determine whether Zabaneh was entitled to an injunction against Terri.

Read the whole opinion, Zabaneh Franchises v. Walker, 2012 IL App (4th) 110215, by clicking here.

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