Employment Noncompete Agreement Act under Consideration in the Illinois General Assembly
Non-compete agreements are mechanisms used by employers to limit an employee’s ability to work for a competitor for a period of time after the employment relationship terminates. Employees typically sign these agreements as a condition of hire. Employers are increasingly relying on non-competes to protect any competitive advantage they may have in their particular industry, especially during times of economic uncertainty such as these. However, not every non-compete agreement is enforceable.
The enforceability of non-compete agreements is governed by state law. In Illinois, the courts have historically assumed the task of determining the enforceability of non-compete agreements on a case-by-case basis as there is no general governing statute.
However, in February of this year, Representative Thomas Morrison of the Illinois General Assembly sought to change that by introducing a bill entitled, the “Employment Noncompete Agreement Act” (HB 2782). The bill has generated controversy not only for its attempt to codify an area of law already entrenched in judicial precedent, but also because it proposes certain key substantive changes to the state of the law on non-competes.
Under the current scheme, Illinois courts are reluctant to enforce non-compete agreements because these agreements are viewed as imposing restraints on trade and contrary to sound public policy promoting mobility in the marketplace.[1] Nonetheless, courts may enforce a non-compete agreement where the agreement’s terms are “reasonable and necessary to protect a legitimate business interest of the employer.”[2] Generally, courts acknowledge that a legitimate business interest exists where (1) the customer relationships are near permanent and but for the employee’s association with the employer, the employee would not have had contact with the customers; and (2) the former employee acquired trade secrets or other confidential information through his employment and subsequently tried to use it for his own benefit.[3] Courts measure “reasonableness” by assessing factors such as the agreement’s hardship to the employee, its effect on the general public, and the scope of the time, territory, and activity restrictions encompassed in the agreement.[4] The courts do not use any set formula for gauging time, territory, or activity restrictions; but instead, employ extremely fact-specific analyses depending on the circumstances of each, particular case.
The proposed Employment Noncompete Agreement Act deviates from the current framework in three material respects.
First, in divergence from the current view of the Illinois courts that non-compete agreements contravene public policy as restraints on trade that are only enforceable in certain, limitedly-defined circumstances, the bill proclaims that, “[t]he General Assembly finds as a matter of public policy that all employers have vested, protectable interests in their customers, clients, and identified prospects which are legitimately protectable through the use of noncompete agreements.”
Second, rather than the flexible case-by-case approach currently used by the courts to decide the reasonableness of non-compete agreements, which takes into account the scope of the geographic, time, and activity restrictions incorporated in the agreement, the bill sets forth a sliding scale formula for the maximum temporal scope of an enforceable non-compete agreement based on the employee’s salary. The bill specifies that the following time restrictions on an employee’s ability to compete are valid:
- 6 month maximum non-compete period for an employee earning less than $50,000;
- 9 month maximum non-compete period for an employee earning $50,000-$99,999;
- 12 month maximum non-compete period for an employee earning $100,000-$149,999;
- 18 month maximum non-compete period for an employee earning $150,000 or more.
Third, the bill proposes extremely controversial damages provisions for any breaches of a valid noncompete agreement. The bill includes a fee-shifting provision, stating that “[t]he prevailing party in a proceeding to enforce a valid noncompete agreement is entitled to recover damages, costs and expenses, and reasonable attorney’s fees.” The bill furthermore implicates subsequent employers for damages where an employee breaches a non-compete: “A subsequent employer of an employee who is a party to a valid noncompete agreement must honor the noncompete agreement. A subsequent employer who aids and abets an employee’s breach of a valid noncompete agreement is liable for damages, costs and expenses, and reasonable attorney’s fees incurred by the employer who is a party to the valid noncompete agreement.”
The controversial nature of the proposed Employment Noncompete Agreement Act leaves doubt as to whether it will garner sufficient votes for passage. However, as of now, it is still pending for consideration and, if eventually enacted in its current form, would significantly alter the law in Illinois, in ways that, from appearances, would pose greater encumbrances for employees who have signed non-compete agreements.
To view a full version of the proposed Employment Noncompete Agreement Act, visit:
[1] Del Monte Fresh Produce, N.A., Inc. v. Chiquita Brands Intern. Inc., 616 F. Supp. 2d 805, 816 (N.D. Ill. 2009); Francorp, Inc. v. Siebert, 126 F. Supp. 2d 543, 546 (N.D. Ill. 2000) (invalidating an employee’s non-compete agreement and noting, “Illinois courts have long been hostile toward restrictive covenants as restraints on trade and contrary to sound public policy”); Roberge v. Qualitek Int’l, Inc., 2002 WL 109360 at *4 (N.D. Ill. Jan. 28, 2002) (invalidating an employee’s non-compete agreement and noting, “In Illinois, restrictive covenants are disfavored in the law and closely scrutinized because they are repugnant to the public policy encouraging an open and competitive marketplace”).
[2] Id. at 817 (quoting Lawrence & Allen, Inc. v. Cambridge Hum. Res. Group, Inc., 292 Ill. App. 3d 131, 138 (2d Dist. 1997)).
[3] Lawrence & Allen, Inc.,292 Ill. App. 3d 131, 141-142 (2d Dist. 1997).
[4] Id. (citing Cambridge Engr., Inc. v. Mercury Partners, 90 BI, Inc., 378 Ill. App. 3d 437, 447 (1st Dist. 2007)).
