A non-compete agreement, also known as a covenant not to compete, is a contract (usually between an employer and employee) where the employee agrees not to compete with the employer – typically in a certain industry, for a set amount of time and in a particular geographical area.
The nature of today’s transient workforce has caused many employers to include restrictive covenants in their employment contracts, such as non-compete agreements. A non-compete agreement seeks to protect the employer from an employee taking advantage of company resources, training, goodwill, trade secrets, and other assets, and using it to compete with that company. Historically, Illinois courts would enforce a non-compete agreement only if the employer was able to establish that the agreement was no broader than necessary to protect a legitimate business interest – which was defined as either confidential information or near-permanent relationships. This criteria made it difficult for employers to enforce their non-compete agreements, especially those in highly competitive and diluted sales markets.
In 2011, the Illinois Supreme Court issued landmark decision in the Reliable Fire Equip. Co. v. Arredondo, 2011 IL 111871 (Slip. Op. Dec. 1, 2011) case. The Reliable Fire case drastically changed the criteria from a strict test to a “reasonableness” standard, which considers the unique circumstances of each case. In weighing reasonableness, the court may consider various factors, including whether the non-compete agreement (1) is no greater than required to protect a legitimate business interest of the employer, (2) does not impose an undue hardship on the employee, (3) and does not injure the public (such as causing a general restraint on someone working in their given trade). The legitimate business interest definition was expanded into a “totality of the circumstances” test including non-conclusive factors, such as the near permanence of customer relationships, time and place restrictions, and the particular employee’s acquisition of confidential information from the employer.
Some Illinois appellate courts are also requiring adequate consideration for the non-compete agreement to be enforceable. Either two-years employment or some additional form of compensation for the non-compete agreement is sufficient in those jurisdictions.
If you have a non-compete agreement and are considering leaving your job, it is highly advised to speak with your attorney. Many employers aggressively enforce their non-compete agreements. If you are an employer, it is critical to draft an effective and enforceable non-compete agreement to protect your business. A short meeting may save you a lot of money and headaches in the future, no matter which side of the table you sit on.