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Illinois Courts Must Consider the Unique Facts in Each Case When Ruling on the Effectiveness of Non-Compete Agreements

Covenants not to compete, also known as non-compete 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.

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 but only after the employee works for the employer for two years after signing the agreement.  The employer can also pay reasonable compensation such a bonus when the employee signs the agreement. 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.

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. 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.

Sources:

http://www.illinoiscourts.gov/opinions/supremecourt/2011/december/111871.pdf

https://www.isba.org/ibj/2012/01/lawpulse/employmentcovenantsnottocompetetheh

http://www.legalmatch.com/law-library/article/illinois-law-on-covenants-not-to-compete.html#sthash.Gi94PX5H.dpuf

http://employment.findlaw.com/hiring-process/non-competition-agreements-overview.html#sthash.EuPEHxsp.dpuf

http://www.natlawreview.com/article/non-compete-agreements-lessons-illinois-courts#sthash.o4SxjZ6G.dpuf

Our Chicago non-compete agreement attorneys have defended high level executives in covenant not to compete and trade secret lawsuits. A case in which our firm defended a former Motorola executive was covered in Crain’s Chicago business. You can view that article by clicking here.

DiTommaso Lubin Austermuehle a firm of Chicago business dispute lawyers handles litigation over non-compete clauses for individuals and businesses of all sizes, including small or closely held businesses for whom competition from an ex-employee can be a serious threat. Our Chicago business lawyers with offices near Naperville, Oak Brook and Chicago have substantial experience in restrictive covenant and breach of contract cases, and we are proud of our record of strong results.

DiTommas-Lubin a Chicago business litigation law firm represents both plaintiffs and defendants in such cases, and can also help stop litigation before it starts by reviewing contracts to look for covenants and clauses that could create problems later. Based in Oakbrook Terrace and downtown Chicago, our Naperville, Geneva and Wheaton non-compete clause lawyers take cases from Naperville, Aurora and Schaumburg and many other cities throughout Illinois, as well as in Indiana, Wisconsin and the entire United States. To learn more or set up a free consultation, please contact one of our Chicago business dispute lawyers through the Internet or call toll-free at 1-877-990-4990 today.