The Business Litigation Blog

The Status of Non-Compete Agreements in Illinois

The proliferation of non-compete agreements is a fact in the hyper-competitive world of business.  In Illinois, these agreements are known as covenants not to compete (CNCs).  While CNCs are still allowed in Illinois, there has been substantial evolution of law about them in recent years.

 What is a CNC?

A CNC is part of an employment or other contract (e.g., a buy-sell agreement for a business) that prohibits, for example,  an employee from working in specified industries for competitors of the current employer for a specified period of time.  They are designed to discourage the loss of talent and process/product knowledge that an employer has invested time and money in through the ability of employees to move unfettered from employer to employer.  In the cutthroat world of business, industrial espionage is a factor that must be considered and controlled to the best extent possible and CNCs have been utilized as an effective tool to this end.  All of this changed in Illinois in 2011.

Reliable Fire Equipment Company v. Arredondo

This decision, issued by the Illinois Supreme Court, changed the landscape of CNCs in Illinois.  In this case, Arnold Arredondo worked for Reliable.  He signed a CNC that prohibited him from competing with Reliable in Illinois, Iowa and Wisconsin during his employment and for one year afterward.  He left Reliable and started his own company providing the same services that Reliable provided.  Reliable sued him for violating the CNC.  Eventually, the case ended up in the Illinois Supreme Court.  The Court clarified that Illinois follows a three-pronged test to determine if a CNC is reasonable.  A CNC is deemed to be reasonable if it:

 ●       Is no more restrictive than is required for the protection of a legitimate business interest of the employer;

●       Does not impose undue hardship on the employee; and

●       Is not injurious to the public.

They stressed that the CNC must show a protectable interest that is at stake for the covenant to be fully enforceable.  They rejected the old rigid formula for evaluating reasonableness and adopted a totality of the circumstances framework.  This means all aspects of the situation can come into play when determining whether a covenant is reasonable.

Another recent ruling, Fifield v. Premier Dealer Services, Inc., decided in 2013, has had an impact as well.  Previously, Illinois courts had said that the threshold for reasonableness for a CNC required consideration.  For new employees, the offer of employment had been deemed enough and for existing employees, a term of continued employment was considered adequate.  The Court of Appeals changed all of that by saying that an offer of employment was not adequate consideration and that at least two years of  continued employment was required to demonstrate consideration.

So, after all of this, where are you left as a company if you have CNCs?  Many legal scholars now advise changing cookie-cutter CNCs to be specific to each employee so as to comply with the rules ofReliable Fireand to redraft and institute new CNCs for existing employees along with additional compensation for their signing to comply withFifield.  Therefore, the strategic business needs to examine where it stands.

Some contracts have a geographical and a time frame limitation; some prohibit solicitation of existing or identified potential clients regardless of geography for a specified time frame; some prohibit the solicitation of employees for a period of time; all contracts should prohibit use of the company’s confidential, proprietary, and trade secret information.

To navigate the complexities of CNCs in Illinois, you need experienced representation.  In Chicago, if you or your company use CNCs or if you are concerned that an employee has violated an existing CNC, it behooves you to have a detail examination of the situation.  The attorneys at the Patterson Law Firm are experienced in drafting CNCs and litigating them when they fail.  Give them a call today at (855) 875-3552 to begin securing your business against information and customer drain caused by competing employees.

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