As a business owner or an employee, it is important to understand the contracts you are signing, whether you are a new employee accepting a job or an employer offering a job. Regardless of your level or position at the company, you should not overlook the details of any contract. Business contracts can be complicated with a lot of legal details that may be difficult to comprehend. For example, many people may not know what a non-compete agreement, which is a type of “restrictive covenant,” entails. As an employer, if you wish to enforce a non-compete agreement (also known as a “covenant not to compete”) in regard to an employee, you must draft it carefully according to the standards outlined by Illinois courts. A non-compete clause can be confusing, but you will have an advantage in negotiations if you understand the requirements for enforcing this type of legal document. Whether you are the company owner or the employee, an experienced business attorney can assist you during this process to make sure your rights are protected. The following are some important issues to consider when drafting or signing a non-compete agreement in Illinois.
What Is a Restrictive Covenant/Non-Compete Agreement?
A non-compete agreement is a stipulation within a contract that typically prohibits an employee from going to work for another competing company or starting his or her own competitive business for a certain period of time. The main purpose of this restriction is to prevent an employee from leaving the company to compete against the employer after the employer has invested resources into that employee’s training and giving the employee access to proprietary information. That situation can be detrimental to an employer if an employee brings his or her experience and specific trade secrets to the employer’s competition. Similarly, a worker may use the knowledge and connections that he or she gained from former employment to build his or her own business to compete with that former employer.
Illinois law has certain conditions for non-compete clauses for them to be enforceable. Specifically, the clause must be reasonable and provide for “adequate consideration” (more on that below). A restrictive covenant is reasonable if: (1) is no greater than is required for the protection of a legitimate business interest of the employer; (2) does not impose an undue hardship on the employee, and (3) is not injurious to the public.
Under Illinois law, non-compete or restrictive covenant clauses can apply to workers in many different industries and paygrades. However, these agreements are not enforceable for certain types of workers depending on how much they are paid. For example, if an employer wants to enforce a non-compete agreement against a low-wage employee, or someone who makes $13 or less per hour, a court will not enforce that agreement, even if the employee signed it.
How Do We Know if a Non-Compete Agreement is “Reasonable”?
Courts will not automatically enforce a non-compete agreement. The restrictions on competition must be reasonable and not be enforced indefinitely. Accordingly, a non-compete agreement generally places constraints on a designated timeline, often six months to two years. In addition, many restrictive clauses should include a geographic area that the agreement covers. For instance, an individual cannot open a competing business down the road from his or her previous company, but he or she may seek employment in a different county.
When creating or reviewing a non-compete agreement, it is critical to ask the following questions:
1. Are the activity restrictions tailored toward an employer’s protectable interests?
2. Are the geographic boundaries reasonable?
3. Are the time restraints reasonable?
4. Do the restrictions cause undue hardship on the employee?
5. Will the restriction be injurious to the public?
The answers to these questions will depend on the specific facts of each case so it is important to understand your business and an employee’s role in a company before signing a covenant not to compete. However, typically, non-compete agreements that extend beyond the geographic borders of an employee’s previous sales territory are often held as being unreasonable and unenforceable. The timeline that is considered fair for these types of restrictions is typically no more than two years.
What Constitutes “Adequate Consideration”?
In addition to being reasonable, the non-compete agreement must also provide “adequate consideration.” Restrictive covenants are different from other contracts since they require adequate and separate consideration. “Consideration” is a thing that is bargained for. For example, when a customer buys a product, it gives “consideration” (i.e., money) in return for the product. Courts typically do not require that consideration be a minimum price or be reasonable, but when it comes to non-compete agreements, Illinois courts do require that the consideration be reasonable. Under Illinois law, employment for two years or more is considered adequate consideration, but if an employee is employed less than two years, then a court will likely not enforce the non-compete agreement. However, there are other ways to approach this and an experienced non-compete attorney can help.
Contact a Cook County Business Lawyer
Business law is meant to protect company owners as well as employees. Before drafting or signing a non-compete agreement, you should discuss the details of your restrictive covenant with an experienced Burr Ridge business law attorney. At Shakfeh Law LLC, we can help you determine if it is reasonable. With over a decade of experience in business law, Attorney Danya Shakfeh is well-prepared to advise you on your next steps. To schedule a confidential consultation, call our firm today at 630-517-5529.