The Journal of The DuPage County Bar Association

Back Issues > Vol. 30 (2017-18)

Non-Compete Agreements In Illinois: What You Need To Know
By Daniel R. Bryer

Non-compete agreements or restrictive covenants are commonly used by employers to prohibit former employees from taking similar jobs with competitors. Such agreements represent a partial restraint on trade. Thus, their terms must strike a balance between an employer’s right to protect its customer relationships and confidential information, and an employee’s right to earn a living. In other words, any agreement restraining trade needs to be reasonable.1 Illinois law has several specific rules and jurisprudential standards that dictate whether a non-compete agreement will be considered reasonable. These standards can generally be summarized as requiring restrictive covenants to: (1) have adequate consideration, (2) be no greater than is required for the protection of a legitimate business interest, (3) not impose undue hardship on the employee, and (4) not be injurious to the public.2 The devil, however, is in the details and the careful practitioner must be sure to understand and apply the subtle nuances underlying these general requirements in order to ensure that each non-compete agreement is enforceable.

What Is Adequate Consideration In Illinois? The primary question that arises time and time again in the context of non-compete agreements is whether simply providing continued employment to an at-will employee constitutes consideration sufficient to render a non-compete agreement enforceable. In Illinois, the answer to this question is a matter of time, degree and forum. The most recent Illinois state decisions on this issue have established a bright line requiring two years of continued employment in order for consideration to be adequate to support a non-compete agreement.3 Federal courts within Illinois, however, have generally rejected the two-year bright line approach in favor of a case-by-case determination regarding the adequacy of consideration.4 Notably, these federal decisions seem to be in accord with the most recent Illinois Supreme Court authority on the matter, which holds that the overall reasonableness of restrictive covenants must be evaluated under a totality of the circumstances test.5 In light of the apparent conflict between certain state and federal interpretations on adequate consideration, the best approach for an employer is to provide some form of additional consideration at the time a non-compete agreement is signed. This can ideally be accomplished by coordinating the timing of a non-compete agreement to coincide with the promotion of an employee or the payment of a bonus.

Is The Restrictive Covenant No Greater Than Is Required For The Protection Of A Legitimate Business Interest? The Illinois Supreme Court has specifically held that the existence of a legitimate business interest is based upon the totality of the facts and circumstances of a particular case.6 When evaluating a business interest, all circumstances surrounding that interest must be considered and a determination cannot be based upon a specific set of factors. Certain factors that are often utilized as part of this analysis include, but are not limited to, the near-permanence of customer relationships, the employee’s acquisition of confidential information through his or her employment and time and place restrictions.7 No factor carries any more weight than any other, but rather its importance will depend on the specific facts and circumstances of the individual case. Therefore, when evaluating the existence of a legitimate business interest, counsel must take into account all circumstances, as prior judicial decisions on this topic serve only as non-conclusive examples of the business interest analysis.8

Does The Restrictive Covenant Impose An Undue Hardship On The Former Employee? A restrictive covenant imposes an undue hardship on a former employee if it is overbroad in terms of time, activity, and place and therefore deprives the former employee of the opportunity to pursue an occupation.9 Again, there is no bright-line rule used to determine what is overly broad, and time, activity and place are general factors used in determining overall reasonableness. Illinois courts have enforced time restrictions of up to five years,10 but as a practical matter rarely is a restriction of more than one year necessary. A place restriction must generally be limited to where a company is doing business and where an employee could have established relationships with the employer’s customers.11 Place restrictions that are broader than necessary to protect the employer’s interest are unenforceable. A non-compete agreement can be enforceable even without a place restriction where the agreement contains an activity restriction designed to protect customer relationships.12 The restriction has to be reasonably related to protecting customer relationships developed by the employee while working for the employer and cannot apply to customers who the former employee never contacted or solicited while working for the former employer.13 These standards can vary significantly by industry and are situationally dependent. Therefore, the best practice is to tailor a non-compete agreement that conforms to the circumstances at issue and contains only those time, activity, and place restrictions that are absolutely necessary.

Enforcing Non-Compete Agreements In Illinois. A suit in Illinois to enforce a restrictive covenant should be filed in Chancery Court and can seek as relief a temporary restraining order or injunction.14 Notably, even if a restrictive covenant is found to be overly broad, Illinois courts can enter an injunction declaring the covenant enforceable but limit its scope.15 The judicial revision of such a covenant is sometimes referred to as “blue penciling” and may only be done to modify the restraints embodied in a covenant and may not be used to add language or matters to a contract about which the instrument itself is silent.16 A restrictive covenant, however, must be strictly construed and any ambiguities are resolved against enforcement of the restriction. Thus, tailoring a relatively simple, straightforward and direct non-compete agreement that contains provisions set forth in direct and specific terms is the best practice in order to ensure enforcement of that provision should the matter proceed to litigation.

Recent Developments Impacting Non-Compete Agreements in Illinois. The most notable recent development impacting non-compete agreement in Illinois is the passage of the Illinois Freedom to Work Act.17 The Act was passed in response to Jimmy John’s requiring employees to sign non-compete agreements that contained certain unreasonable restrictions. Specifically, the agreements restricted workers from obtaining employment at businesses located with two or three miles of Jimmy John’s locations if the business obtained more than 10 percent of their revenue from the sale of certain similar menu items. The Act effectively bans Illinois employers from entering into noncompete agreements with low-wage employees. Low-wage employees are defined by the act as any employee who earns the applicable federal, state or local hourly minimum wage or $13.00 per hour, whichever is greater.18 Any non-compete entered into with a low-wage employee after January 1, 2017 is illegal and void under the Act.

Conclusion. Non-compete agreements are often vital in the constant struggle to safeguard customer relationships and proprietary information. Careful adherence to the bright line rules and subtle nuances governing these agreements are necessary in order to ensure enforceability in this ever-changing area of the law. The careful practitioner should therefore tailor each restrictive covenant so as to comply with the current state of the law and reflect the considerations at issue in each particularized situation. This will allow for maximum effectiveness and guard against a judicial finding that a covenant is overly broad.

1. Dam, Snell & Taveirne, Ltd. v. Verchota, 324 Ill. App. 3d 146, 151 (2d Dist. 2001).
2. Reliable Fire Equip. Co. v. Arredondo, 2011 IL 111871, ¶¶16-17.
3. Fifield v. Premier Dealer Servs., 2013 IL App (1st) 120327, ¶19.
4. Montel Aetnastak, Inc. v. Miessen, 998 F. Supp. 2d 694, 716 (N.D. Ill. 2014).
5. Reliable Fire Equip. Co., 2011 IL 111871, ¶42.
6. Id.
7. Id. at ¶43.
8. Id. at ¶42.
9. Tower Oil & Technology Co. v. Buckley, 99 Ill. App. 3d 637, 642-43 (1st Dist. 1981).
10. Mohanty v. St. John Heart Clinic, S.C., 225 Ill. 2d 52, 78-79 (2006).
11. Cambridge Eng’g, Inc. v. Mercury Partners 90 BI, Inc., 378 Ill. App. 3d 437, 448 (1st Dist. 2007).
12. Lawrence & Allen v. Cambridge Human Res. Grp., 292 Ill. App. 3d 131, 139 (2d Dist. 1997).
13. Id.
14. Circuit Court of Cook County - General Order 1.2, 2.1(b)(1).
15. Eichmann v. National Hosp. & Health Care Servs., 308 Ill. App. 3d 337, 347 (1st Dist. 1999).
16. Id.; Baird & Warner Residential Sales, Inc. v. Mazzone, 384 Ill. App. 3d 586, 593 (1st Dist. 2008).
17. Public Act 099-0860, 2015 Ill. SB 3163 (2017).
18. Id. at Sec. 5.

Daniel R. Bryer is a Partner with the law firm of Clausen Miller P.C. and focuses his practice on labor and employment law and commercial litigation. Dan received a Bachelor of Arts degree in Political Science from Indiana University, his Juris Doctor degree from The John Marshall Law School and a Master of Laws in Business and Corporate Governance Law from Loyola University Chicago School of Law.

 
 
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