Blue Penciling Non-Compete Agreements in Illinois

There has been a growing national trend among state and federal courts to resist or outright refuse to alter (commonly referred to as “blue pencil”) the terms of non-compete agreements that are unenforceable in order to make the restrictive covenant enforceable on the whole. Given that the law in the area of restrictive covenants, such as covenants not to compete, is an ever developing area of law, it is important for employers to understand their state’s position on blue penciling.

Non-compete agreements are fairly standard contracts in certain industries and are used frequently in connection with the sale of a business or when hiring higher wage employees, such as officers or directors. They’re designed to protect the business interests of both parties, ideally without infringing too much on the other party’s legitimate interests.

Illinois, like many states, generally will enforce non-compete agreements provided that they meet certain requirements and are only used in certain circumstances. One circumstance in which Illinois courts will not enforce non-compete agreements is if they are used with low-wage employees in violation of the Illinois Freedom to Work Act (IFWA). Illinois law contains other industry or profession-specific restrictions on the use of non-compete agreements including with lawyers, broadcasters, and government contractors.

There are three basic legal approaches to evaluating restrictive covenants, each identified by a different color pencil. The most restrictive approach is commonly referred to as the “red pencil” doctrine under which the entire non-compete agreement is struck down if any part of it is invalid. Arkansas, Nebraska, and Virginia are examples of states that adhere to the red pencil doctrine. Another approach commonly referred to as the “blue pencil” doctrine permits a court to strike unenforceable or invalid portions of a non-compete agreement so that what remains is enforceable. Arizona, Connecticut, and Indiana are examples of states that utilize a blue pencil approach to non-compete agreements.

The most flexible approach has been referred to by commentators as the purple pencil doctrine though many courts simply refer to it as “reformation.” Under this approach, courts may reform or rewrite covenants not to compete to be consistent with the parties’ original intent and to be enforceable under applicable law. While similar to the blue pencil doctrine (which is frequently used as a catch-all term to apply to any modification of a restrictive covenant), the purple pencil doctrine differs in that it allows rewriting non-compete agreements to make them enforceable while the blue pencil doctrine, when using the term in its strictest sense, only permits removing unenforceable or invalid provisions from the agreement.

Nearly thirty states, including Illinois, have adopted this reformation or purple pencil approach. Though adopting a more flexible doctrine for reviewing restrictive covenants, Illinois courts routinely refer to their approach as blue penciling in court opinions on the topic. Illinois courts have been willing to modify or reform non-compete agreements in order to make them enforceable for decades. However, Illinois courts have been reluctant to modify non-compete agreements that are particularly unfair or overly broad, opting instead simply to strike down them down in their entirety. In other words, Illinois courts will take into account the reasonableness of the restraint as originally written when deciding whether or not to reform and enforce the agreement.

A number of recent cases in Illinois seem to hint at a trend among courts to move away from modifying unenforceable agreements and towards invalidating them entirely. One such case that we have written about previously is Deere Employees Credit Union v. Smith in which the court concluded that the covenant not to compete was unenforceable as originally written but declined to modify the agreement to make it enforceable. The court explained that judicial reformation could actually create a perverse incentive for employers to draft overly broad restrictions with the expectation that courts would simply amend the agreement if necessary to make it enforceable in the particular circumstances of each case.

The take away from this is that Illinois courts do have the authority to reform or blue pencil a non-compete agreement but employers should not count on this happening. Instead, employers should ensure that their restrictive covenants are carefully drafted in the first place and are used only as needed and when reasonable. Additionally, they should have such agreements periodically reviewed and updated by an attorney to ensure that the agreements reflect recent changes in a notoriously fluid area of law.

Whether you are an employee being asked to sign a non-compete agreement or an employer needing a non-compete agreement or needing to see if your existing agreement is still valid, it is important to speak with an experienced restrictive covenant and non-compete agreement law attorney. It is no less important to have a skilled non-compete attorney at your side if you find yourself embroiled in litigation over the enforcement of a covenant not to compete, non-solicitation agreement, or nondisclosure agreement.

Super Lawyers named Illinois commercial law trial attorney Peter Lubin a Super Lawyer and Illinois business dispute attorney Patrick Austermuehle a Rising Star in the Categories of Business Litigation, Class Action, and Consumer Rights Litigation. Lubin Austermuehle’s Illinois business trial lawyers have over thirty years of experience litigating emergency business litigation, non-compete agreement, intellectual property theft, and complex class-action lawsuits. Our Naperville and Clarendon Hills business dispute lawyers handle emergency business lawsuits involving copyrights, trademarks, injunctions, and TROS, covenant not to compete, franchise, distributor and dealer wrongful termination and trade secret lawsuits and many different kinds of business disputes involving shareholders, partnerships, closely held businesses and employee breaches of fiduciary duty. We also assist Chicago and Oak Brook area businesses and business owners who are victims of fraud. You can contact us by calling 630-333-0333. You can also contact us online here.

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