A covenant not to compete is an agreement between an employee and their employer that applies after the employment relationship terminates. These covenants generally prohibit the former employee from working with industry competitors for a specific time period after the employee leaves the company.
These covenants can be placed a clause in an employment contract or may be drafted as an entirely separate document. Both parties will need to sign the agreement. In Illinois, courts will enforce these covenants if they are found to be valid after careful analysis. Enforceability will depend on the text of the agreement and each individual situation.
In Illinois, a covenant not to compete is considered to be valid if the following requirements are met:
- The covenant is supported by adequate consideration upon signature. This is generally in the form of a promise by the employer.
- For example, the employer could promise not to enforce the covenant after the requisite time period expires. Consideration can also be in the form of money or employment benefits.
- If there is no consideration, Illinois courts have found that two years of employment with the company will allow enforcement of the agreement. However, federal courts have questioned this finding.
- The covenant must protect a legitimate business interest, such as confidential information, trade secrets or customer relationships. A legitimate business interest cannot include the employer’s desire to prevent normal competition where disclosure of confidential business information or established client relationships is not at risk.
- The covenant not to compete must be reasonable. Illinois courts have determined that the reasonableness standard will generally be met if the following factors are satisfied:
- It is restrained to a specific geographical region;
- The enforcement timeframe is not excessive;
- The agreement centers around a valid employment relationship;
- There will not be an undue hardship on the employee if the agreement is enforced;
- The terms of the agreement only protect legitimate business interests; and
- The agreement will not harm the public or otherwise be against public policy.
If all of the above elements are present, an Illinois court will likely enforce a covenant not to compete. If a person violates the covenant, they may be sued by their former employer and be required to pay monetary damages.
Illinois courts have a longstanding tradition of supporting business interests by upholding covenants not to compete. 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.
However, there are still limitations to the enforceability of these covenants. Blanket agreements that severely restrict a former employee’s ability to find future employment will likely be struck down by the courts. In 2018, a federal court in Illinois decided to take a less liberal approach tp covenants not to compete.
This court ruled that a covenant is not enforceable if the agreement prohibits the employee from taking any position at another company in the same industry. The court concluded that this would place an undue hardship on the employee.
Based on the recent trend relating to enforceability of covenants not to compete in Illinois, we can conclude that overbroad covenants will be held unenforceable in most circumstances. However, if the covenant only prohibits the employee from seeking certain positions within a company in the same industry that directly relate to the work the employee performed for their former employer, the covenant will likely be held enforceable if all the other requirements are met.
Before signing a covenant not to compete, you should consider having a local employment law attorney review the document. An attorney can review the covenant and let you know if any of its terms are unreasonable or might present a future undue hardship. An attorney can also help you negotiate the terms of a covenant with your employer before signing the agreement.
After your employment relationship is severed, an attorney can also advise you on whether taking a certain job would violate the terms of your covenant. If you believe the agreement is unenforceable, an attorney can also help you file a lawsuit against your former employer. However, keep in mind that Illinois courts will enforce these agreements in many situations.