under Illinois law the AHP's noncompetition clause is void as
overbroad. Alternatively, Sarnoff and Fletcher assert that
AHP's noncompetition clause is similarly void under New York
law. They also maintain that they have not breached the
noncompetition clause and that, in any event, AHP should be
estopped from asserting a breach.
Because there is no real conflict between the substantive
law of New York and that of Illinois as to the validity of
AHP's noncompetition clause, the choice of law issue is not
controlling. Even assuming that New York and Illinois differ
on this issue, however, Illinois' conflict of law principles
indicate that Illinois' substantive law governs this
controversy. Thus Illinois law must be applied in any event
and its application precludes enforcement of the Plan's
The courts of Illinois disfavor noncompetition clauses,
enforcing only such provisions as are "reasonably necessary to
protect a legitimate business interest or to prevent improper
and unfair competition." Rao v. Rao, 718 F.2d 219, 223 (7th
Cir. 1983). See also American Hardware Mutual Insurance Co. v.
Moran, 705 F.2d 219, 221 (7th Cir. 1983); Akhter v. Shah,
119 Ill. App.3d 131, 74 Ill.Dec. 730, 733, 456 N.E.2d 232, 235 (1st
Dist. 1983); MBL (USA) Corp. v. Diekman, 112 Ill. App.3d 229,
67 Ill.Dec. 938, 944-45, 445 N.E.2d 418, 424-25 (1st Dist.
1983) ("restrictive covenants are closely scrutinized"). These
principles have been applied by Illinois courts to a forfeiture
of deferred compensation based on breach of a noncompetition
clause. Johnson v. Country Life Insurance Co., 12 Ill. App.3d 158,
300 N.E.2d 11 (4th Dist. 1973) (forfeiture of renewal
premiums resulting from former insurance agent's breach of
AHP does not contest the adherence of the New York courts to
this same restrictive view of noncompetition clauses; when
found in employment contracts. See American Institute of
Chemical Engineers v. Reber-Friel Co., 682 F.2d 382, 386-87
(2nd Cir. 1982). Rather, AHP maintains that New York courts do
not evaluate the reasonableness of noncompetition provisions
where such clauses operate only to forfeit deferred
compensation and such clauses do not actually prohibit
competition by a former employee.
In support of its argument AHP cites Kristt v. Whelan,
4 A.D.2d 195, 164 N.Y.S.2d 239 (1st Dept. 1957), aff'd w/o
opinion 5 N.Y.2d 807, 181 N.Y.S.2d 205, 155 N.E.2d 116 (1958).
In Kristt, the New York Supreme Court, Appellate Division
articulated the so-called "employee choice" rule: that a
noncompetition clause is enforceable where the former employee
has "the choice of preserving his rights [to deferred
compensation] by refraining from competition with [his former
employer] or risking forfeiture of such rights by exercising
his right to compete." 164 N.Y.S.2d at 243. However, in
Bradford v. New York Times Co., 501 F.2d 51 (2nd Cir. 1974),
the Second Circuit stated that in light of subsequent decisions
by the Court of Appeals of New York:
We do not agree that Kristt represents the law of
the state if it be construed to eliminate any
inquiry into reasonableness because of some
purported doctrine of `employee choice.' The
inquiry remains whether or not the restraint was
reasonable and the contract was breached.
501 F.2d at 57.