Do you have a great idea and the desire to run your own business or…
When hiring an employee, most employers are not thinking about what will happen if the relationship goes sour. However, depending on the role that employee plays within the company, that is exactly what the employer needs to think about in order to ensure that its interests are protected should that employee eventually leave the company. One way to protect those interests is through the use of non-competition clauses and other restrictive covenants such as non-disclosure and non-solicitation clauses. These clauses are designed to prevent employees from engaging in a wide variety of competitive activities that could disrupt or destroy the company. This includes going to work for a competitor, disclosing confidential or trade secret information, and soliciting the employer’s valuable customers and employees.
Unfortunately, most courts – including those in Illinois – do not look favorably upon non-compete agreements and require that they are not only be reasonable but supported by adequate consideration. To achieve this, the non-compete must be (1) related to a valid employment relationship, (2) no greater than is necessary to protect a legitimate business interest of the employer, (3) without undue hardship on the employee, and (4) without injurious effect to the public. Most litigation over non-compete agreements centers around whether the employer has a legitimate business interest to protect and whether the agreement imposed an undue hardship on the employee.
When determining whether a legitimate business interest exists, courts look at the “totality of the circumstances,” including the extent of an employee’s knowledge of and access to the employer’s confidential information and the extent of the employer’s investment of time, effort or money in developing the employee’s relationship with customers. With respect to whether the agreement imposes an undue hardship on the employee, courts will look at the type of restriction placed on the employee, as well as the length and geographical scope of the restriction. Generally, to be enforceable, the restriction must be appropriately tailored to the employer’s interest which means that it must not be any longer or broader than is necessary to protect the employer’s business interest.
In addition to being reasonable, a non-compete agreement must also be supported by adequate consideration. Historically, continued employment after signing a non-compete agreement could constitute consideration. However, Illinois courts have held that, in order to be an adequate consideration, the employee must be employed by the employer for at least two (2) years after signing the agreement before the agreement can be enforceable. Alternatively, the employer can provide the employee with something additional (whether it be compensation, vacation days, stock options, etc.) that he/she was not already entitled to as consideration when entering into the agreement.
While a non-compete agreement can be a valuable tool to protect your company, it is important to ensure that it is properly drafted. Non-compete agreements are not one-size-fits-all and, to be enforceable, must be specifically tailored to your own business needs.