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.
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:
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 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:
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.
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:
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.
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:
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.
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.
Illinois has implemented targeted restrictions for specific professional sectors.
Non-competes are unenforceable against:
While non-compete agreements can be valuable, business leaders should consider taking a multi-faceted approach.
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:
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.
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.