A non-compete agreement, non-compete clause, or a restrictive covenant is simply an agreement between two parties that one will not perform certain work, will not service certain clients, or will not perform any work within a certain geographical area for a specified period of time. Most often it is an agreement between an employee and employer where the employee agrees not solicit former customers, not to work for competitors or not perform certain kinds of work for a set period of time following the termination of the employment. For example company A restricts employee B from performing services as a welder within 10 miles of the location of employer A for a period of 1 year following employee B’s termination and prohibits employee B from performing any work, regardless of the area, for any customers of employer A that were customers while employee B worked for employer A.
In Illinois, as a general rule, these agreements are not favored. In order for the agreements to be upheld they need to be drafted properly in light of existing Illinois case law and Illinois statutes. The agreements must be part of an enforceable contract, the agreements must be reasonable and the agreements must be supported by adequate consideration. So what is reasonable? In general the Illinois courts have held that a restrictive covenant must:
- must not be broader than is necessary to protect a legitimate business interest;
- must not be unduly burdensome, or in other words must not present an undue hardship; and
- the agreement or clause must not violate public policy or harm the public
So what is adequate consideration? In large part what is deemed “adequate” consideration is viewed by the totality of the circumstances. Under the Fifield v. Premier Dealership Services, 2013 IL App.(1st) 120327 case the Illinois Appellate Court for the First District ruled that at will employment by itself, unless it is more than 2 years is not adequate consideration. In other words if you receive nothing more than your employment terms in exchange for the covenant not to compete and you are not employed for more than 2 years, the non-compete agreement will not be enforceable. Illinois courts and the federal districts in Illinois have not consistently applied the bright line rule regarding 2 years of employment. Some districts and courts have begun analyzing potential other forms of consideration or additional consideration. For example signing bonuses or new hire offers may create adequate consideration despite the under 2 year duration of employment.
Finally, Illinois has now prohibited the use of non-competition agreements for “low wage” employees. Pursuant to the Illinois Freedom to Work Act employers may not enter into non-competition agreements with employees who earn the greater of minimum wage, as required under state, federal or local law or $13.00 per hour. Therefore, if you are an employee or have an employee who earns less than $13.00 per hour or minimum wage, whichever is greater, any non-competition agreement is null and void and unenforceable.
Drafting non-competition agreements is a complex process that must be done properly in order to ensure validity and enforceability. We work with business or all sizes in drafting non-competition agreements, restrictive covenants and employment agreements. We also work with employees to ensure that non-competition agreements are fair and enforceable. We work with clients for employment contracts, non-competition agreements and non-disclosure agreements throughout Chicago, Schaumburg, Hoffman Estates, Streamwood, Bartlett, Palatine, Barrington and the rest of the Northwest Suburbs.