How a Non-Compete Agreement Can Protect Your Business

 Posted on December 09, 2016 in Employment Law

Non-compete agreements (NCAs) are very common in this day and age, especially in specific fields that are at the leading edge of technology, but also throughout business in general.  There are a number of prevailing myths about NCAs.  One myth is that NCAs can be fairly far-reaching and restrictive.  At the same time, another myth is that they are not typically enforceable.  The truth is that NCAs are enforceable, but the more far-reaching and restrictive an NCA is, the less likely a court will deem it enforceable.  Still, NCAs can be powerful tools in protecting your business, your customers, and your proprietary information.

Illinois Trends

While Illinois does not have a general statute that regulates the creation of NCAs, common-law precedent establishes the two major trends that Illinois courts continue to follow in regulating NCAs. Generally, the state tends to disfavor NCAs because they are restraints upon trade, which is against public policy.  In order to be enforceable, a court must find that a legitimate business interest exists worthy of protection to support an NCA, rather than a mere desire to hamstring a potential competitor or former employee.

Second, Illinois courts, generally, will not enforce a non-compete as written unless two criteria are fulfilled.  First, the NCA must be ancillary to either a valid contract or employment relationship - in other words, the NCA must be intended to be observed by either contract employees or full-time employees.  Second, the NCA must be supported by consideration, not unlike any other contract. Consideration is essentially any act or benefit conferred in exchange for the promises made by an employee in an NCA.  For example, an employee could be given a bonus for signing a non-compete, which would constitute adequate consideration.  However, consideration can be much less consequential.  An employee could be asked to sign a non-compete agreement in exchange for being awarded a particular job or a promotion.  Other times an employee may be asked to sign a non-compete simply in exchange for a period of continued employment.

Patterns to Avoid

While non-compete agreements will usually be enforced in Illinois where the criteria, above, are met, one must also recognize that the scope of an NCA will almost always come into play in terms of enforceability.  While there is precedent for Illinois courts to modify or “blue-pencil” an NCA to narrow its scope to acceptable ranges, sometimes judges will simply refuse and rule entire documents null and void, for example, where an NCA contains egregious inequities.

The primary reasons NCAs get thrown out of court are when they are overreaching or not relevant. This most commonly applies to geographic restrictions.  In the case of Arpac Corp v Murray (1992), for example, the court ruled that “virtually unlimited” geographic restrictions imposed by an NCA were too overly broad to protect a legitimate business interest, and that the employer could not simply extend the restricted zone out of a protectionist desire.  Other cases invalidate NCAs where the length of time the restrictions are set to last is deemed to be too long.  For example, an NCA governing an employee of a computer company that contains a time duration of three years might be ruled unenforceable, even if the geographic restrictions were acceptable, simply because after three years in the computer technology field, any proprietary information the employee may have learned would likely be obsolete.  What may be deemed as reasonable in one case might be held to be unreasonable in another depending upon the facts – every case is decided based upon the facts specific to that particular case.

Seek Experienced Legal Assistance

Crafting an NCA that will stand up in court can be a complex endeavor, but having a knowledgeable legal professional on your side can help immeasurably. Our Sugar Grove business, employment law, and non-compete attorneys are happy to put our experience to work for you. Contact us today to set up an appointment.