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). It prohibits, for example, an employee from working in specified industries for competitors for a specified period of time. They discourage the loss of talent and knowledge that an employer has invested in. In the cutthroat world of business, industrial espionage is a factor that must be considered and controlled to the best extent possible. CNCs have been utilized as an effective tool to this end. In 2011, this all changed in Illinois.
Reliable Fire Equipment Company v. Arredondo
CNC’s Must be Reasonable
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. He could not compete during his employment and for one year afterward. Then, he left and started his own company that provides the same services. Reliable sued him for violating the CNC. Eventually, the case reached the Illinois Supreme Court. The Court clarified that Illinois follows a three-pronged test to determine if a CNC is reasonable.
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 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.
For the covenant to be fully enforceable, the CNC must show a protectable interest is at stake. 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 ruling decided in 2013, had an impact as well. Previously, Illinois courts said a CNC’s threshold for reasonableness required consideration. For new employees, the offer of employment was deemed enough. For existing employees, a term of continued employment was considered adequate. By saying an offer of employment was not adequate consideration, The Court of Appeals changed all of that. Additionally, they said two years of continued employment was required to demonstrate consideration.
What Should You Do if You Use CNCs?
After all 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. This helps ensure compliance with the rules of Reliable Fire. New CNCs should be redrafted for existing employees along with additional compensation for signing to comply with Fifield. Therefore, the strategic business needs to examine where it stands.
Some contracts have geographical and time frame limitations. Others prohibit solicitation of existing or 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.
Contact Us
To navigate the complexities of CNCs in Illinois, you need experienced representation. If your company uses CNCs, it behooves you to have a detail examination of the situation. Our attorneys are experienced in drafting CNCs and litigating them when they fail. Call us (312) 223-1699 to begin securing your business.