Illinois Law on "Covenants Not To Compete"
Covenants not to compete can be found in employment contracts – either at-will employment or employment for a certain term. They read something like this: “I agree that for eighteen (18) months after the termination of my employment, I will not serve as an employee, consultant, or associate for; nor contribute to any business in competition with aforesaid Company, in the U.S. and all other countries of the world.” Covenants not to compete prevent former employees from working for competing companies.
Illinois law has enjoyed a long tradition of supporting business interests by upholding covenants not to compete. In a recent decision, the Illinois Supreme Court strengthened its policy of upholding reasonably drafted covenants not to compete. The case involved physicians who contested the covenants not to compete in their hospital contracts.
However, the Court found that these covenants not to compete preventing the doctors from working within a five-mile radius of the clinic was not overly-restrictive, because Chicago was a large metropolitan area where other hospitals and employment opportunities for doctors could readily be found. The Court also held that a five-year time restriction was reasonable, as a successful cardiology clinic needs over ten years to establish itself.
In Illinois, a covenant not to compete is “reasonable” if it is supported by “consideration” when signed, that is, if there is a promise given by the employer. Second, the covenant must protect a legitimate business interest, such as confidential information or customer relationships. A legitimate business interest cannot include the business’s desire to prevent normal competition. Next, the covenant not to compete must be reasonable in scope – geographically, temporally, and in regards to the portion of the industry excluded.
While liberally enforcing Covenants not to compete relative to other states, Illinois law still, as a general rule, disfavors attempts to restrain trade, economic mobility, and employees’ freedom to follow personal interests. This disfavor means that Illinois courts, like their sister courts across the U.S., will continue to scrutinize covenants not to compete carefully.
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Last Modified: 04-05-2013 02:03 PM PDT