A non-compete agreement is an agreement between an employer and an employee that imposes certain restrictions on the employee after the relationship between the employer and employee ends. These agreements typically restrict former employees from working for certain competitors for a specified period of time. Illinois courts tend to dislike non-competes on a matter of principal. However, courts will enforce a non-compete agreement if it is drafted properly. The courts have created a framework of decisions which lend guidance on how a non-compete should be properly drafted. There are many complex parts to a non-compete and this article is intended only to provide a brief overview.
When considering whether to enforce a non-compete, a court will review the agreement to determine if it is reasonable and if it is supported by adequate consideration.
The courts have held that a non-compete will be considered reasonable if:
- The non-compete agreement is related to a valid employment relationship;
- The terms of the non-compete agreement are no more than what is required to protect the legitimate business interests of the employer;
- The non-compete agreement does not impose an undue hardship on the employee; and
- The non-compete agreement is not harmful to the public.
Each of these criteria will be considered independently by the court and then reviewed together again as a whole.
Normally, it is relatively simple to determine if a valid employment relationship existed or if an agreement is harmful to the public. However, it is much harder to determine if an employer has a legitimate business interest to protect. Illinois courts will consider all of the facts related to a non-compete (using what is known as a as totality of the circumstances analysis) including whether the employer’s relationships with its customers are near permanent or if the employee obtained confidential information while working for the employer to decide if the employer has a legitimate interest to protect.
Next the courts will look to the see if the non-compete agreement places an unreasonable burden upon the employee. In determining if the terms of the non-compete are reasonable, courts will review the type of restrictions imposed by the non-compete, the length of the restrictions and the geographical limitations of the non-compete. These items must be deemed to be appropriately tailored to the employer’s interest (i.e. – no too long or overly broad). A court will consider a non-compete to be geographically reasonable if it covers the same area as where the employer does business.
In additional to all of the items above, a non-compete must be supported by sufficient consideration. In the event that no consideration (monetary or otherwise) is offered for the employees’ agreement to enter into the non-compete, Illinois courts have recently held two years (twenty-four months) of continued employment as the time period required in order to enforce the non-compete even where the employee signed the non-compete as a condition of employment and voluntary resigned.
As an alternative to the two-year rule above, other items, both monetary and non-monetary (i.e. vacation days, cash bonuses, certain perks, stock options, etc.), can be offered as consideration for an employees’ agreement to enter into a non-compete provided that such compensation benefits one of the parties and hurts the other. The amount of compensation will be considered by the courts and must be deemed to be reasonable in light of the restrictions placed by the non-compete agreement.
However, it is important to note that federal courts have disagreed and questioned strictly implementing the “two years” rule.
Should you have any questions about the enforceability about your current non-compete agreement, having a non-compete agreement drafted or any other law that may affect your business, please contact Waltz, Palmer & Dawson, LLC at (847)253-8800 or contact us online.
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