Non-Competition Agreements: What Are They and Are They Enforceable In Illinois?
- Created: Wednesday, 10 February 2016 15:25
by Patrick B. Mathis, Shareholder & Amy Randazzo, Law Clerk at Mathis, Marifian and Richter, Ltd. & Student at St. Louis University
A non-competition agreement is basically a contract between two parties where one party agrees not to compete with the other for some period of time. In an employment relationship, this often means an employee agrees not to work for a competing business for a period of time after employment with an employer. Non-competition agreements help employers protect things like their customer base or confidential information. However, they can also restrict an employee's ability to find gainful employment. Because of the potential harm to employees, courts tend to look at non-competition agreements skeptically and not all agreements are enforceable.
It is important for both employees and employers to know what makes a non-competition agreement enforceable by a court. In Illinois, non-competition agreements must be both reasonable and must protect a legitimate employer interest. In order to be considered reasonable, the time and geographic restrictions must not be greater than necessary to protect the legitimate employer interest. What is "greater than necessary," and therefore unreasonable, depends on the circumstances of each case. For example, a non-competition agreement that restricts an employee from working for a competitor anywhere in the United States may be unreasonable for a company that only has one location and only local customers, but might be deemed reasonable for a company with nationwide offices.
The timing of the non-competition agreement can also make a difference as to its enforceability. In general, for a contract to be valid, there must be an offer, acceptance of that offer, and consideration. When we ask if there is consideration, we are asking if both parties have agreed to exchange something. For example, when buying a car, the dealership agrees to give the car to the customer in exchange for money. The car and money are the consideration. In the context of non-competition agreements that are signed after an employee has already been working for the employer, Illinois courts want to confirm that consideration was made by the employer in exchange for the employee’s agreeing not to compete. This is often done either through additional compensation, such as a bonus payment, or even the promise of continued employment, though this latter consideration may be carefully examined by the courts. For instance, in 2014 an Illinois appellate court confirmed that for continued employment to be valid consideration, the employee must work for at least two years following execution of the non-competition agreement.
So what does all this mean? If you are an employee who is considering leaving your employer but are concerned you may be violating a non-competition agreement, you may want to contact an attorney to review your obligations and rights. Contacting an attorney is also a good idea if you are an employer who would like to institute non-competition agreements or are facing an employee potentially violating a non-competition agreement that is already in place.
Patrick Mathis is a shareholder at Mathis, Marifian & Richter LTD., who focuses his practice in business law, taxation, estate planning and banking.