;An Illinois non-compete agreement is a term in a contract that a business can use to prevent an employee from working for other firms in the same field. The guidance for creating valid non-compete agreements comes almost entirely from court cases, not state statutes, which can be pretty complex or case specific.
Illinois treats non-compete agreements that are part of the sale of a business much more leniently than agreements that are part of the sale of a business.
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Yes, non-compete agreements are enforceable if they are part of a valid contract, and
- They are reasonable in duration,
- They are reasonable in the geographic area covered, and
- They are necessary to protect the legitimate business interest of the employer.
Non-compete agreements are not enforceable against employees who:
- Make less than $75,000 per year;
- Were laid off off as a result of the COVID-19 pandemic;
- Work under a collective bargaining agreement; or
- Work in construction, except for those in management positions.
Non-compete agreements have different requirements depending on whether they are found in an employment contract or part of a business’s sale. Courts are more strict about evaluating non-compete agreements in an employment contract than they are non-compete agreements stemming from the sale of a business. (Arcor, Inc. v. Haas (2005))
Both types of agreements must meet the reasonableness requirement. But non-compete agreements that are part of an employment contract are generally valid only in two particular circumstances:
- The employer that wants to enforce the non-compete agreement has a near-permanent relationship with its customers, and, without the job, the former employee would not have had contact with the customers; or
- There are customer lists, trade secrets, or other confidential information to be protected.
The primary protectable interest justifying a non-compete agreement when selling a business is the protection of the business’s “good will.” As a result, the preliminary test for determining whether a non-compete agreement is “ancillary” to the sale of the business is based on whether the parties intended to finalize the deal by protecting good will. Hamer Holding Grp., Inc. v. Elmore (1990).
If a company is a professional services business, such as an accounting firm, it is the “nature of the business” that a near-permanent relationship likely exists. On the other hand, if the business is purely a sales company, where clients often move among competitors, then it is unlikely there is a near-permanent relationship. Springfield Rare Coin Galleries v. Mileham (1993)
Suppose it is unclear whether a business does professional services or sales, or a business has traits of both. In that case, courts use seven factors to decide whether a company’s non-compete agreements with its employees are enforceable:
- The amount of time it took to develop the customer base;
- The resources invested in obtaining these customers;
- How challenging it was to acquire these customers;
- The amount of personal contact between workers at the company and the customer;
- The amount of information the company has about the customer;
- The amount of time that the customer has been with the company; and
- Whether the customer continues to use the business for a particular service or periodically relies on other firms to do it.
The Illinois Trade Secrets Act permits non-compete agreements to prevent former employees from disclosing confidential information they acquired while working for a company. 765 Ill. Comp. Stat. Ann. 1065/2.
However, for the information to be eligible for protection from a non-compete agreement:
- It must be economically valuable, and
- The company must make efforts to keep it secret.
Post-employment non-compete agreements are not enforceable against workers in the broadcasting industry. 820 ILCS 17/10.
Attorneys cannot enter non-compete agreements contained in employment or partnership agreements, except for agreements concerning retirement benefits. Some reasonable limitations of law practice may also be factored into agreements surrounding the sale of a law firm. Rule 5.6, Illinois Rules of Professional Conduct.
Attorneys cannot settle cases in a way that limits their right to practice in the future. Rule 5.6, Illinois Rules of Professional Conduct.
Non-compete agreements may be enforceable against employees who are terminated, but will not be if the employer terminated the employee bad faith. (Rao v. Rao (1983)).
The employer seeking to enforce a restrictive covenant has the burden of showing that it is necessary for protecting its interests. (Cambridge Engineering v. Mercury Partners (2007)).
Continued employment may be adequate consideration for a non-compete agreement. If the worker is employed for a “substantial period” of time beyond the point of potentially being let go can be sufficient consideration. Although there is no fixed definition, at least two years of employment is generally considered to qualify, but less time may not. (Prairie Rheumatology Associates S.C. v. Francis (2014)).
There is no precise maximum amount of time for a non-compete agreement in Illinois, and whether a particular term is enforceable will depend on other parts of the agreement, such as how wide an area it covers.
In agreements found in employment contracts:
- An agreement with the general sales manager of a fertilizer company that prohibited the employer from working in the field for three (3) years within a 50-mile radius has been held enforceable. (Tyler Enterprises of Elwood v. Shafer (1991)).
- But, a non-compete agreement involving an employee of a head-hunting firm that prohibited the employee from working for a competitor for two years was not enforceable because it applied to the entire united states. (Lawrence & Allen, Inc. v. Cambridge Human Resource Group, Inc. (1997))
Agreements that are part of the sale of a business may allow for longer terms. In the sale of a trucking firm, a non-compete agreement lasting ten (10) years within a 100-mile radius has been considered enforceable. (Russell v. Jim Russell Supply, Inc. (1990)).
If a portion of a non-compete agreement is unreasonable, a court may limit it in such a way that renders the agreement reasonable while upholding the purpose of the agreement. (Total Health Physicians, S.C. v. Barrientos (1986))
Including a “severability” clause in a non-compete agreement, which states that if one or more parts of the agreement are found unreasonable, then the other parts still apply, makes it more likely that a court will “blue pencil” an agreement than if there were no such clause. (Abbott-Interfast Corp. v. Harkabus (1993))