Covenants not to compete, also known as noncompete agreements, are often used by businesses to prevent their employees from leaving the company and then using the knowledge they gained to compete with the employer within the same geographic territory. Such agreements are usually signed by an employee upon accepting employment, and are often intended to protect trade secrets or prevent pilfering of a business’s clients by former employees. They usually restrict a former employee from operating the same type of business or working within the same industry, within a defined territory, for a finite amount of time, which can be anywhere from one to three years. Our Chicago non-compete agreement attorneys are familiar with how these documents operate.
Illinois, like most states, enforces covenants not to compete in employment agreements as long as they meet certain requirements. First, there must be some consideration, or promise, offered by the employer to the employee in return for agreeing to refrain from competing upon termination of employment. Typically, the employment itself is considered adequate consideration. The agreement also must be reasonable in scope. The Illinois Supreme Court has established a rule that attempts to balance the interests and rights of the employer with those of the former employee while also considering the impact on the public. A non-compete agreement lawyer can assist Chicago clients with determining how this balance may affect them.
Primarily, noncompete agreements must reasonably protect an employer’s legitimate business interests without creating an undue hardship on the former employee’s ability to practice a trade or profession. They also should not deprive the public of needed services or competition for those services. In determining what are “legitimate business interests” and what are reasonable restraints on competition, Illinois courts must consider the facts specific to each individual case. The most recent state supreme court case on the matter, decided in 2011, is Reliable Fire Equipment Co. v. Arredondo, 2011 IL 111871. In that case, the Illinois Supreme Court clarified this “totality of the circumstances” test used to determine the reasonableness of noncompete covenants. “Factors to be considered in this analysis include, but are not limited to, the near-permanence of customer relationships, the employee’s acquisition of confidential information through his employment, and time and place restrictions,” the court held in its opinion.
Furthermore, while protecting confidential information and customer relationships are considered legitimate business interests, an employer’s desire simply to avoid competition within its market is not. The non-compete agreement attorneys at our Chicago firm are aware that Illinois courts, like those in most other states, look with disfavor on efforts to restrict trade. Moreover, courts will not uphold noncompete covenants that exceed the time or geographical scope necessary to protect an employer’s legitimate interests. The territory must be limited to that in which the employer operates, and the applicable time period must not be longer than is necessary to protect confidential trade information.
Clearly, Illinois employers attempting to draft or enforce employee noncompete agreements must be aware that state jurisprudence in this area will remain very case-specific. Our Chicago non-compete agreement lawyers can assist you with determining how the law applies to your specific situation.