Are Non-Competes Enforceable in Illinois?
It is important to point out that although non-compete agreements are legal in Illinois, they are closely regulated by the state. Generally speaking, employees are legally obligated to uphold the terms of these employment contracts, and some issues are more likely to arise than others. The most common problems with non-disclosure agreements involve contract violations.
Legal obligations for non-compete agreements are clearly defined in the Illinois Compiled Statutes under ILCS § 110/105. The statute describes the different requirements for specific timeframes and geographical areas that must be included in the agreement . It is on the employer to prove that the terms of the agreement are reasonable.
For a non-compete agreement to be considered valid, it must include one of the following provisions:
Employers cannot ask for unreasonable provisions in their non-compete agreements. Illinois laws regarding these employment contracts are clear in what types of requirements can and can’t be included and what their time limits can be. Illinois non-compete agreements must be reasonable according to the statute in order to be considered valid.
Recent Developments in Illinois Non-Compete Guidelines
Recent changes and amendments to the Illinois laws regulating non-compete agreements
On January 4, 2017 the Illinois Freedom to Work Act ("Act") went into force. The Act prohibits certain employers from entering into non-compete agreements with any employee who earns equal to or less than $13 per hour or the salaried equivalent of $27,060 annually (Tipped Workers). On January 1, 2017, the Illinois Minimum Wage Law was amended so that the minimum wage increased from $8.25 per hour to $10.00 per hour. The Act does not apply to employees who make in excess of $13 per hour except in certain home healthcare settings.
The Act does apply to any employee who is subject to a non-compete agreement. The Act, however, does not apply to employees subject to a non-solicit agreement. The Act does not define an employee or worker. An employee may be entitled to penalties if they can show that their employer willfully and intentionally violated the Act. If that is the case, the employee may be entitled to liquidated damages of $5,000 per violation and reasonable attorney’s fees and costs.
The Act exempts the following agreements: The Act went into effect on January 4, 2017 but it does not take effect in counties that have adopted a minimum wage higher than the amounts stated above, unless the act takes effect 60 days prior to the effective date of the other minimum wage law. For example, Cook County has a minimum wage increase to $13 per hour effective July 1, 2017. Cook County will then remain exempt until February 1, 2018.
As it relates to the Home Healthcare industry, the Act does not prohibit or invalidate any non-compete agreements with workers who are employed as 1) home health aides as defined in 225 ILCS 60/2.10; 2) home service workers as defined in Ill. Adm. Code 225 Part 750; and 3) home services as defined in Ill. Adm. Code 210 Part 200. These provisions are interpreted to refer to the Illinois Home Care Consumer Bill of Rights.
Non-Compete Enforceability Requirements
In evaluating whether or not a non-compete agreement is enforceable, Illinois courts will look to several different criteria. The first thing the court will want to know is: what legitimate interest of the employer is the non-compete clause working to protect? An employer may have several legitimate interests in protecting their business against you the employee. These could include several things that upon leaving employment with the company, you might choose to take with you. Some legitimate interests of an employer would include: locations of clients, methodologies of operation, client contact names, identity of customers, formulas and other trade secrets or proprietary information.
The next thing the court will want to know is whether the non-competition clause is reasonable. In determining reasonableness the Court will look to factors including the length of time your non-compete clause is in effect, the geographical area, and what are the legitimate business interests the employer will be protecting.
If the non-compete clause is for two years, and you live in Illinois, work outside of Illinois etc. the court will view this as reasonable. However, if the non-compete clause is for three years, even if you still live and work within Illinois, the non-compete becomes unreasonable because it will take at least a year before you get up to speed with the business, and two years after that in which you need to find another job and get up to speed.
If the non-compete clause is too broad or too long, the court may be less likely to enforce it. If on the other hand the non-compete is for six months, in the business you were employed in, and covers a geographical area where you have worked and lived for the past five years, then the court may believe that the non-compete is relevant and may enforce it.
Exceptions & Limitations
Illinois law has certain limitations to the enforceability of covenants not to compete. Although the statute does not list these limitations, courts have held that the agreement must not impose a greater restraint than necessary to protect protect business or trade secrets and (sometimes) must be no greater than necessary to protect legitimate interests.
Non-competes have less force on lower level employees, for whom there is little risk of leaking information. The non-compete also must not be more restrictive than an employer’s legitimate business interests.
There are other exceptions or limitations in Illinois statutes as well. Oftentimes the agreement is rendered void if you don’t sign at least two days after receiving it.
Other professions which are often exempt from some of these restrictions or the restrictions themselves include: Medical professionals , including but not limited to, optometrists (effective until June 1, 2027); veterinarians (effective until January 1, 2027); physicians who own the practice where they work (effective until January 1, 2017); and engineers (effective until January 1, 2015).
There are additional exemptions and restrictions, however, especially for governmental employees and law enforcement personnel, so it’s important to speak with an experienced attorney to review your specific situation and non-compete agreement.
Penalties for Breaching a Non-Compete
The primary legal "penalty" for violating a non-compete agreement is the issuance of an injunction against the employee or former employee. In simple terms, this injunction is a court order that requires the person to stop violating the agreement. Depending on the circumstances, a violation of a non-compete agreement may also result in a lawsuit for breach of contract by the employer against the employee or former employee. If the employer’s business is damaged by this breach, that person could be liable for monetary damages as well. The risk of injunction and/or damages may cause the employee to think twice before violating his or her non-compete agreement.
If an employer has issued a non-compete agreement that the Illinois courts consider too broad, the courts have the ability to either refuse to enforce it, or at least "blue pencil" it, meaning the court will agree that the agreement is valid but will not enforce all of its restrictions because some are unreasonable.
For an employee, the most significant risk associated with a non-compete agreement is the threat of an injunction. Even employers who are unsure about the enforceability of a non-compete will still seek injunctive relief. That is because an injunction is typically the only way to prevent an employee from carrying out actions that violate an otherwise valid and enforceable noncompete.
How to Contest a Non-Compete Agreement in Illinois
Employers in Illinois use non-compete agreements to protect the company’s ability to compete against others after an employee leaves. Employers often sue former employees to enforce the restrictions of the non-compete. But an employee can also go to court and sue the former employer for a declaration that the restrictions in the agreement are invalid and non-enforceable. The employee may also be able to recover money damages if the company sued the employee in bad faith.
It is also important to remember that a non-compete being inappropriate at the beginning doesn’t mean it will be inappropriate at the end, when it’s being enforced. At that time it may have to be narrowed by the court to be enforceable, and thus in the public interest and not create undue hardship on the employee. For example, a non-compete that attempts to limit a former employee from ever working anywhere in the state of Illinois may not be a valid restraint, but if the former employee only worked in certain cities or regions and used proprietary information to benefit a new employer in those areas, a narrow injunction may be appropriate.
If a non-compete is, as a matter of law, completely invalid, a court may still issue an order prohibiting the employee from using or disclosing the company’s confidential information. In that case , the non-compete is strictly enforced with an injunction against the employee and her new employer about the use or disclosure of trade secrets and confidential information. This is true because this type of misappropriation of confidential information injures both the employer and the public in that it creates a market barrier preventing companies from successfully competing without taking business from the previous employer.
A challenge to a non-compete is usually brought in the county where the employee resides or does business. A court can then issue a declaratory judgment or injunctive relief against the enforcement of a non-compete when it finds that:
An employer will often argue that the agreement was entered into for good consideration and the public interest outweighs the hardship that a non-compete places on the employee. But the employer also needs to show that the employer has interests to protect and that public policy support the imposition of a restraint on a former employee.
A determination about the relationship between an employee and the former employer is made by examining both the contract and the circumstances surrounding its making. The fact that there is disagreement about whether the restriction is reasonable is not enough to prove that the agreement is not enforceable.