Navigating Non-Compete Agreements in Illinois: Business Leader's Guide

Think that non-compete clause is going to stop your biggest competitor from poaching your employees?

Unfortunately, that is not always the case.

The enforceability of non-compete agreements has been eroded over time both at a state and federal level, leaving many business leaders confused and frustrated.

Non-compete agreements are a critical, yet often misunderstood tool to safeguard confidential business information and competitive advantage.

Poorly drafted non-compete agreements may not be enforceable, potentially leaving your business vulnerable to competitive harm or costly litigation.

This article will help you as a business leader understand the boundaries of non-compete agreements in Illinois, and give you the tools you need to make informed decisions about when and how to use them.

What is a non-compete agreement in simple terms?

A non-compete agreement is a contract where an employee agrees not to engage in competitive activities—such as working for a competitor or establishing a similar business—after their employment is over.

The primary objective is to protect an employer’s legitimate business interests, which can include:

• Confidential information:This encompasses proprietary methodologies, client databases, marketing strategies, or unique product designs that provide a competitive advantage.
  
  
• Customer relationships: Businesses invest significant resources in cultivating client relationships. Non-competes aim to prevent former employees from leveraging these established connections for a competing entity.
  
  
• Specialized Training and Investment: Where an employer invests substantially in an employee’s unique skill development, a non-compete seeks to prevent that investment from being immediately transferred to a direct competitor.

While these protections are vital, Illinois and federal law has evolved to balance employer interests with an employee's right to earn a living.

The Illinois Freedom to Work Act

The Illinois Freedom to Work Act has significantly reshaped the enforceability of non-compete agreements in Illinois.

However, business leaders and HR professionals that understand the statutory requirements can still use non-competes to protect their competitive position.

Here are some of the key aspects to the Illinois Freedom to Work Act:

1. Salary thresholds for enforceability

The first critical aspect of the Act to understand is the minimum salary threshold.

Non-compete agreements are unenforceable against employees earning below $75,000 per year.

That figure will be increased to $90,000 per year by statute gradually until 2037.  

2. Adequate consideration

For a non-compete to be enforceable the employee must receive "adequate consideration" in exchange for the restrictions.

Adequate consideration under the Act can be:

• Two years of continued employment: The employee worked for the employer for at least two years after the employee signed the non-compete.
  
  
• Other form of adequate support: This could be a period of employment plus additional professional or financial benefits, or it could be financial or professional benefits by themselves.

Key takeaway: The two year period of employment is defined as adequate under the Act. However, the additional consideration is less clear. Courts may have varying interpretations of what is “adequate” under the circumstances.

3. Legitimate business interest

Beyond the income threshold and the issue of adequate consideration, if a non-compete agreement is more restrictive than is necessary to protect a legitimate business interest, it may not be enforceable.

To determine if an interest is legitimate and protectable, business leaders should consider:

• Customer relationships: The more permanent the customer relationship, the more likely it is the interest is legitimate and protectable.
  
  
• Confidential information: The extent to which an employee gained access to confidential information as part of the employment relationship.
  
  
• Time and place restrictions: Time and place restrictions must be reasonable. The time period during which the employee is restricted should be narrowly tailored to protect the employer's interests, and the geographic scope should be tailored to the employee’s actual business operations.
  
  
• Activity restrictions: The restriction on an employee’s activities after employment cannot be overly broad.

Key takeaway: Generic templates often fall short. Your non-compete agreements should be tailored to an employee's specific role. A highly specialized sales executive with comprehensive client lists and confidential information may require a different scope than an employee with  limited access to information.

4. The 14-Day Review Period and Legal Counsel Notification

Employers must provide employees with at least 14 calendar days to review a proposed non-compete provision.

Employers must also notify employees in writing that they should consult with legal counsel before signing.

Industry specific considerations

Illinois has implemented targeted restrictions for specific professional sectors.

Non-competes are unenforceable against:

• Individuals covered by a collective bargaining agreement under the Illinois Public Labor Relations Act or the Illinois Educational Labor Relations Act.
  
  
• Certain employees in the construction industry.
  
  
• Employees that provide mental health services to veterans and first responders if the enforcement is likely to result in an increase in cost or difficulty for any veteran or first responder seeking mental health services.

Practical tips for business leaders

While non-compete agreements can be valuable, business leaders should consider taking a multi-faceted approach.

• Confidentiality/non-disclosure agreements: These are typically designed to protect your proprietary information, such as client lists, pricing strategies, and operational methodologies. They are generally more favored by courts as they focus on specific information rather than restricting employment.
  
  
• Non-solicitation agreements: These prevent former employees from soliciting your existing customers or recruiting your current employees. While they are still subject to certain statutory restrictions in Illinois, they approach the restriction from a different angle and can be more likely to be enforced in certain circumstances.
  
  
• Robust Internal Policies: Clear, well-communicated internal policies regarding data access, intellectual property, and ethical conduct can significantly mitigate risks.

When you should talk to an Illinois employment lawyer

The law surrounding restrictive covenants is constantly evolving at both a federal and state level.

Often times the approach to protecting a legitimate business interest with a non-compete or other restrictive covenant is a complex question. It usually involves a comprehensive analysis of the unique circumstances of the employment relationship in question, and high quality judgment in terms of the combination of tools used and the restrictions placed on the employee.

This means that generic templates, self-drafted agreements, or documents created online are often insufficient and may expose your business to considerable risk.

An experienced Illinois employment lawyer can give your business the best chance of protecting itself from competitive harm by:

• Ensuring agreements comply with applicable state and federal law

• Providing strategic advice on creating a comprehensive protection strategy

• Negotiating and resolving disputes with employees

The law around non-competes keeps changing, and what worked five years ago probably won’t work today.

An Illinois employment lawyer will help navigate the legal complexities and create a strategy to protect your business.

The bottom line

Non-compete agreements can be valuable tools for protecting your business.

But they have to be used strategically.

Business leaders must understand the limitations of non-compete agreements, and how to strategically combine the use of different restrictive covenants as tools to protect critical business interests.

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Disclaimer: The information contained in this article has been prepared by Small Business Legal Solutions LLC for general informational purposes only. Nothing in this article is intended to constitute legal advice on any subject matter. The materials in this article are not intended to and do not create an attorney-client relationship. Do not act or refrain to act based on any information contained in this article without first personally consulting with an attorney. Every circumstance is different and must be judged on its own merits.