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Torrence v. Hewitt Associates

OPINION FILED MAY 7, 1986.

JAMES R. TORRENCE, PLAINTIFF-APPELLANT,

v.

HEWITT ASSOCIATES, DEFENDANT-APPELLEE.



Appeal from the Circuit Court of Cook County; the Hon. Arthur L. Dunne, Judge, presiding.

JUSTICE MCNAMARA DELIVERED THE OPINION OF THE COURT:

Plaintiff, James R. Torrence, brought this action against his former employer, defendant, Hewitt Associates, seeking to have the forfeiture provision in his non-competition agreement declared invalid and unenforceable. The trial court granted Hewitt's motion for summary judgment on the basis that Torrence violated the valid agreement when he began working for a competitor of Hewitt.

Hewitt is an Illinois partnership which provides consulting services in the area of employee compensation, benefits, communications and related services. Torrence, an attorney, was a partner at Hewitt from 1977 until he resigned in May 1981. He specialized in flexible compensation, a method of providing employees with various alternative taxable and nontaxable benefits. The Hewitt articles of partnership, as amended in October 1980 and executed by Torrence, included section 9.03(c)(iii), which provided that for a two-year period after leaving Hewitt, partners could not:

"directly or indirectly, alone or as a partner, employee, agent, consultant, entrepreneur, venturer, owner, or stockholder * * * engage anywhere [within 50 miles of a Hewitt office] in any business activity which is competitive with any business activity conducted by the partnership at the Termination Date * * *."

The articles also restricted former partners from soliciting work from, or performing work for, Hewitt clients, and from attempting to hire Hewitt employees. A liquidated-damages clause provided:

"If a partner violates section 9.03(c)(ii), * * * the partnership shall be entitled to recover from such partner liquidated damages in an amount equal to 30% of such partner's average Partnership Share * * *; upon collection by the partnership of such liquidated damages it shall waive its right to obtain specific performance and injunctive relief with respect to such violation."

The articles further stated that the partners agreed the non-competition agreement was reasonable and necessary to preserve the interests of the partnership and that the liquidated-damages provision had been carefully read, that it balanced the interests of the partnership and withdrawn partner in an equitable manner, and that the formula was calculated reasonably and represented the best judgment of fairness by all partners.

In May 1981, Torrence resigned from Hewitt. He became director of legal service and general counsel to A.S. Hansen, Inc., a competitor of Hewitt which provides the same services as Hewitt and which has its offices within 50 miles of the Hewitt offices. Hewitt responded by deducting $30,000 from Torrence's capital account and retaining that amount as liquidated damages. Torrence subsequently filed this declaratory action, and discovery proceedings began.

Landrum M. Fisher, president of Hansen, testified at his deposition that "the flexible-compensation practice has grown by leaps and bounds in Hansen and Hewitt and Wyatt and everyone of our competitive companies," and that at Hansen, Torrence "has been a contributor to that growth." Torrence improved the quality of Hansen's legal services, which included the flexible-compensation activities. Fisher also testified that Torrence has "[a] very unique skill," and that "Jim brought that skill to us." Moreover, when Torrence joined Hansen, it announced his arrival: "We are looking to Jim to provide a much needed resource capability in the areas of flexible compensation and internal communication." The announcement also stated that Torrence had been with Hewitt for eight years, the last five of which he was a partner.

William N. Bret, chairman of Hansen, testified at his deposition that Torrence installed flexible-compensation programs for Hewitt, and was a leader in helping Hansen develop similar programs "in the past year or so since '83. We made a conscious decision to enter the practice for competitive reasons, and he's been a factor in helping us to do that."

At his deposition, Robert W. Zentz, assistant general counsel for Hansen and a former staff attorney for Hewitt, stated that Hewitt treated certain materials in a confidential manner when Zentz worked there. These materials included Hewitt's client list and its annual financial reports which were passed out to employees at meetings but collected at the end of each meeting.

Peter E. Friedes, a Hewitt partner, gave a sworn affidavit that Hewitt generates certain data which is distributed only to partners. This includes partnership financial analyses, future business plans, partnership candidate information, and potential affiliations and acquisitions. He stated further that the data is of great value to Hewitt, is not accessible to competitors, and that every effort is made to keep the information confidential. Friedes also stated that Hewitt's reports regarding flexible compensation, one of the most significant areas of its business, were disseminated on a restricted basis. The reports were identified as being confidential, and recipients, by accepting the reports, were deemed to have agreed not to disclose their contents.

Torrence testified at his deposition that at Hansen he spent approximately 20% of his time consulting in the flexible-compensation area. He also stated that as a partner with Hewitt he obtained financial statements and analyses, and attended partnership meetings. Torrence obtained information relating to Hewitt's future business plans, new services that would be offered to clients, and particular problem areas.

After discovery was completed, the trial court granted Hewitt's motion for summary judgment, finding that the restrictive covenant was valid and enforceable; that the employee was in a position of trust and confidence; that the covenant had reasonable limitations; and that the liquidated-damages clause was triggered when Torrence went to work for a competitor. The trial court ...


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