Enforceable Non-Compete Agreements in Illinois

One of the most litigated issues in employment law is the legality of restrictive covenants like non-compete agreements. A non-compete agreement is a contract between an employer and an employee, in which the employee agrees not to engage in certain activities for a set period of time should she leave the employer. Non-compete agreements are frequently used by businesses to protect legitimate business interests, such as confidential information, trade secrets, and customer lists. Because non-compete agreements restrain trade, they are not looked upon with favor by Illinois courts, especially where the agreements are unreasonable and overly-inclusive.

Illinois Courts on Non-Competes

The general rule in Illinois is that a non-compete agreement is enforceable to the extent that it is reasonable and necessary to protect an employer’s legitimate business interest. There are two situations in which Illinois courts may find an employers’ interests legitimate and protectable: (1) the nature of the business creates a near-permanent relationship between the employer and customers, and the employee had contact with the customers solely because of the employment; and (2) an employer has trade secrets which the agreement is designed to protect, and an employee learned of such secrets during her employment. The “near-permanent” relationship can be established where there is a showing of long-term exclusive relationships, which were difficult and costly for the employer to develop. Other factors, such as the duration or closeness of such relationships, may also be considered. As to trade secrets, Illinois is considerably protective of an employer’s trade secrets and confidential information. Of course, the employer still has the burden of establishing that trade secrets exist in the first place, and that they are treated as “secrets,” i.e., the employer restricts access to such information from outsiders.

Regardless of whether trade secrets or a near-permanent relationships exists, a non-compete agreement will not be enforced unless the restrictions on competition are “reasonable.” Factors in determining the reasonableness of the restriction include the hardship to the employee, its effect upon the general public, and the reasonableness of the time (duration), territory, and activities restrictions.

Tips on Drafting a Non-Compete

Given the general reluctance of Illinois courts in enforcing non-compete agreements, employers would be wise to consider the following narrow-drafting tips which may increase the odds of enforceability:

• Restrictions on a former employee’s activities should not be broader than necessary. If your employee never engaged in marketing activities while she was employed, you generally can’t prevent her from engaging in marketing activities after she leaves your company.

• Territory restrictions should be narrowly tailored. If your employee only handled sales in the Chicago market, you generally can’t prevent her from handling sales in Alaska after she leaves your company.

• Do not restrict your former employee’s activities for an unreasonable time. Although there is no set rule, a restraint lasting between 6 months to 3 years may be reasonable.

• Consider limiting a former employee’s ability to recruit former co-workers by including an anti-raiding clause. Illinois Courts recognize that employers have a protectable interest in maintaining a stable workforce – anti-raiding clauses prohibit solicitation of fellow employees for a set period of time.

• Consider including a “blue pencil” provision in the non-compete, which would allow an Illinois court to revise an otherwise over-inclusive and unenforceable provision. Blue Pencil provisions are enforceable in Illinois unless the original agreement is extremely unreasonable or unfair.

While these drafting tips do not ensure enforceability of a non-compete by Illinois courts, they can significantly improve the odds of enforceability. If you have any questions regarding non-compete agreements for your business, please call one of our experienced attorneys at Acumen Law Group.

Authored by Dominika Szreder Fard, Esq. and Shoko Asaka, Law Clerk