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What is a non-compete agreement? Are non-compete agreements always enforceable? These are some of the questions we discuss in this article
In this article, we answer the question, "when is a non-compete agreement enforceable in Illinois?" As part of your employment contract, you may have signed an agreement not to compete. These agreements give employers the protection they need to prevent employees from jumping ship to a competitor and bringing along any skills, information, client lists, and secrets they may have obtained from their previous employer. Employers need not worry about competitors poaching their most valuable employees to their detriment. However, these agreements inhibit an individual’s freedom to choose their own place of employment, and are oftentimes harsh or overly broad. As a result, such agreements are frequently contested in court. How do you know if your non-compete agreement is enforceable?
What Constitutes Reasonable Scope for an Illinois Non-Compete Agreement?
Primarily, a non-compete agreement must be reasonable in scope. This is determined by whether it protects a legitimate business interest, doesn’t place an undue hardship on the employee, and doesn’t violate public policy.
A business that has a near-permanent relationship with its clients, such as physicians or insurance companies, has an interest in protecting their continued business with the client and may restrict an employee from attracting their clients to their new employer. Similarly, if an employee has learned trade secrets or confidential information, their employer may restrict their freedom to work for a competitor in order to protect this information. A clause that prohibits a former employee from doing any activity with a competitor, even activities that aren’t a threat to their interests, may be considered too broad to be enforceable.
For example, an enforceable agreement may prevent a salesman or a researcher from taking a job with a competitor for the same position, and bring his clients or expertise to his new job. However, an agreement that prevents a salesman or a researcher from going to a competitor to work as a mechanic may be unenforceable, as the expertise he will be applying at his new job wasn’t acquired at his old job and isn’t a threat to his former employer’s interests.
Additionally, the agreement not to compete must not impose undue hardship on the employee. A clause prohibiting the employee from working for a competitor in a 10 mile radius may be acceptable, but one that prohibits him from working for any competitor in North America may not.
Finally, the agreement must not go against public policy. Agreements that are illegal, give employers virtual monopolies on the workforce in that field or location, or unduly deprive an employee from choosing to go work elsewhere may be unenforceable.
In practice, courts look at three factors to determine whether a non-compete agreement is enforceable:
- Geographic scope;
- Duration; and
- The type of prohibited activity
Non-Compete Agreements and Geographic Scope
A non-compete agreement must be properly limited in geographic scope in order to be enforceable. The rule of thumb is that the agreement can cover any geographic areas in which the employer is currently doing business or imminently intends to begin doing business. This may be a radius of five miles, it may be the state of Illinois, or it may cover the entire United States, depending on the scope of the employer's operation. If the agreement is not limited in geographic scope, or if the the geographic scope is not limited to areas in which the employer has a legitimate business interest, the agreement may be unenforceable.
Duration of Non-Compete Agreements
In order to not place undue hardship on the employer, the non-compete agreements must be limited in duration. We generally see five-year non-compete agreements being upheld. Courts may uphold longer non-compete agreements for highly trained employees with very specific knowledge that would be damaging in the hands of a competitor. Again, courts weigh the legitimate business interests of the employer against the hardship to the employee. The more important the employee's role, the more likely that courts will uphold a longer non-compete agreement.
What Types of Activity Can Non-Compete Agreements Protect?
Non-compete agreements must be limited to activities that actually compete with the employer. The employer cannot prevent employees from working for companies that do not actually compete with the employer.
Does a Non-Compete Agreement Require Consideration?
All agreements must be supported by independent consideration—in other words, getting something in return for your promise to adhere to the agreement. Most of the time, the offer to hire in return for accepting the non-compete agreement is sufficient. If you are already hired and are offered a non-compete agreement, continued employment with the employer or a monetary payment can also be acceptable.
Though it may seem like non-compete agreements are easily contested, in reality most agreements are upheld. Contracts in general are highly valued by the courts, as they are hesitant to override an independent agreement between two private entities. Determining whether an agreement is reasonable is done on a case-by-case basis and you should contact an attorney before deciding to leave an employer with which you have a non-compete agreement.
Non-solicitation, Non-Disparagement, and Trade Secret Clauses
Employers may want to consider including non-solicitation, non-disparagement and trade secret clauses in their employment contracts in addition to or as an alternative to non-compete agreements. Although non-compete agreements are enforceable if properly limited in scope, non-solicitation, non-disparagement, and trade secret clauses tend come under less scrutiny and do not require as stringent scope limitations.
Non-solicitation clauses prevent an employee from contacting other employees or customers of the employer in order to lure them to a competitor. Non-disparagement clauses prevent an employee from making negative statements about the employer in public. Trade secret clauses prevent the employee from sharing particular types of protected information with competitors.
For more on this, check out our article: Clauses for Employers to Include in Employment Contracts and Independent Contractor Agreements.
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