It is critical for a business to have adequate legal safeguards in place to protect its investment in products, customers, and human resources. One of the most underutilized areas of legal safeguards for many businesses is having meaningful and enforceable non-competition and non-solicitation agreements with employees.
A Business should consider, at a minimum, having its management team, sales force, and those employees with direct customer contact, enter into a non-competition and non-solicitation agreement. Most businesses realize the importance of this, but few are current on the very strict and ever evolving requirements that Illinois Courts will ultimately impose on employers once they attempt to enforce the agreements.
A non-competition agreement is an agreement between an employer and employee that prohibits an employee from working for a direct competitor following termination of employment for a defined period of time. A non-solicitation agreement is a similar agreement between an employer and employee, effective post-employment, but prohibits a former employee from soliciting customers or other employees away from the former employer for a defined period of time. Both a non-competition agreement and non-solicitation agreement are forms of restrictive covenants.
It is the policy of the state of Illinois, as communicated by the Courts, to carefully scrutinize non-competition and non-solicitation agreements because they operate as a partial restriction on trade. The Illinois Supreme Court, in Reliable Fire Equipment Co. v. Arredondo et al., a 2011 opinion, set forth the standard for determining whether restrictions contained in a non-competition and non-solicitation agreement are reasonable. The Reliable Court instructed that a restrictive covenant is only reasonable if it (1.) is no greater than necessary to protect a legitimate business interest of an employer, (2.) does not impose an undue hardship on an employee, and (3.) is not injurious to the public.
The courts will also look to whether a restrictive covenant is supported by adequate consideration. Many Illinois cases, including a 2013 opinion by the Illinois Appellate Court (1st District), Fifield v. Premier Dealer Services, Inc., have clarified that non-competition and non-solicitation agreements are likely unenforceable unless (1.) supported by separate and adequate consideration other than employment (i.e. a cash bonus paid to the employee in exchange for entering into non-competition and non-solicitation agreement) or (2.) if the employee works for the employer for a minimum of two years after entering into the restrictive covenant and prior to termination of employment. The Courts do not differentiate between an employee being terminated for cause and voluntarily resigning when applying the two year standard.
Based upon recent Illinois case law, it is important for businesses to look closely at their existing non-competition and non-solicitation agreements. For those businesses that do not have non-competition and non-solicitation agreements in place, it is critical to account for the view of the Courts towards consideration and enforcement issues when drafting and implementing their agreements going forward.
For more information about non-competition and non-solicitation agreements, or this article, please feel free to contact John W. Albee at Albee Law PC via telephone (312) 279-0115 or via email at jalbee@albeelaw.com.
