Wednesday, September 7, 2011

Ask a Lawyer - Non-Compete Agreements in Illinois


Note:  This is the first in a new series of posts entitled "Ask a Lawyer," in which readers may submit questions to be considered for this page.  Please note that, as with any posts on this blog, the posts are educational in nature and do not constitute legal advice in the attorney/client sense.  Therefore, questions should be general in nature and not include any confidential information.

Question:  Please generally explain the enforceability of Non-Compete agreements in Illinois.

This question could justify a treatise, but I will do my best to provide a general, concise, though by necessity perhaps unhelpfully broad, answer.  For a more specific review of a particular Non-Compete agreement or provision in an employment contract, consult and retain an attorney.  I would be glad to talk with anyone who has specific questions about their situation.  

"Covenant Not to Compete" is a provision commonly used in an employment  agreement, that limits the rights of an employee to leave and try to compete with the employer.  Illinois law generally disfavors such agreements because they restrict trade; they are carefully scrutinized and won't be enforced just because the parties agreed to it.  Nevertheless, Illinois courts recognize the employer's "legitimate proprietary interests," and will enforce a reasonable"Non-Compete."  There is a lot of case law on what is enforceable and what is not, much more than I can fairly summarize here.  Here are a few high points:
  • Adequate consideration (or value exchanged) is required.  In the employment context, employment for "a substantial period" of time is adequate consideration.  Illinois courts have found that employment for seven months was not "a substantial period" but employment for two to three years "clearly suffices."  This hurdle could be overcome by the employer paying the employee additional monetary consideration in exchange for the Non-Compete.  
  • The employer must have a "protectable interest."  This arises when (1) the customer relationships are near permanent and but for the employment, the employee would not have had contact with the customer; and (2) when the employee acquired trade secrets or other confidential information during employment and later tried to use it for his own benefit.  
  • The restrictions must be reasonable in time, territory, and activities restricted, considering the hardship on the employee and the effect on the general public.  These factors can depend on the facts of the particular case.  Again, there is extensive case law on this.
What does all this mean in real life?  To have an enforceable Non-Compete, employers should be reasonable and not overreach; determining what is reasonable may require a review of the case law for examples similar to your business situation.  Overreaching can result in the court refusing to enforce the Non-Compete at all.  

Bear in mind that to enforce a Non-Compete typically will involve a request for emergency "injunctive relief," meaning the employer wants the court to order the ex-employee to stop competing right away, not just pay damages at the end of a trial.  The costs of such a proceeding will add up quickly.   But if the restrictions are reasonable, the Non-Compete can be enforced.  

For more information about Illinois Covenants Not to Compete, you may wish to visit the Chicago Executive Lawyer Blog, by my friend and colleague, Attorney Kristen Prinz of The Prinz Law Firm, P.C. 

1 comment:

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