Companies want to employ the most talented workers they can in order to help their businesses thrive. However, they do not want employees to leave with clients or confidential information that can be used to benefit a competitor. Employment agreements may include restrictive covenants to guard against these potential losses. Restrictive employment covenants are clauses in employment contracts or separate contracts that limit an employee’s activity after leaving employment.
There are different types of restrictive employment covenants, including non-compete, non-solicitation, and confidentiality agreements. Non-compete agreements restrict an employee from working for a company that competes with the employer for a certain period of time and within a specific geographic region. Non-solicitation agreements restrict an employee from diverting customers or recruiting employees to join them in a competing business. Confidentiality agreements prohibit employees from revealing information that the employer has designated as secret.
Whether you are an employer or an employee, you may have legal concerns about a restrictive employment covenant. In some cases, disputes over these agreements give rise to litigation. The Chicago employment law attorneys of Neschis & Tolitano draft, review, and negotiate non-compete, non-solicitation, and confidentiality on behalf of both employers and employees. We also handle litigation arising out of these types of agreements.Enforceability of Restrictive Employment Covenants in Illinois
To be enforceable, non-compete and non-solicitation agreements must be reasonable. In Illinois, courts regularly refuse to enforce restrictive covenants that are deemed unreasonable.
In order to establish that a non-compete or non-solicitation agreement is reasonable in the course of contract litigation, an employer will need to show that the restrictions: (1) are needed, but no greater than what is needed to protect a legitimate business interest of the employer, (2) do not create an undue hardship for the employee, and (3) do not harm the public. An employer’s legitimate business interests can include, among other things, protection of confidential information, trade secrets, and customer or client relationships. The agreement must also be supported by adequate consideration, sufficient value provided to the employee in exchange for the promise not to compete. In Illinois, employment for less than two years is generally not considered to be sufficient consideration.
If a court finds that an employer has a legitimate business interest entitled to protection, it will then carefully scrutinize the type of restricted activities, time period, and geographic territory to ensure that the restrictions are no broader than necessary to protect that interest. No particular factor fully determines enforceability. Rather, the court will examine the totality of the circumstances.
Non-solicitation clauses are only enforceable if they are reasonably connected to an employer’s interest in protecting its customer or client relationships. Courts will carefully analyze the nature of both the employer and employee’s relationships with the customers or clients. Courts are less likely to enforce non-solicitation clauses that prohibit employees from providing services to customers or clients with whom they did not have contact during their employment.Litigating Disputes Arising out of Restrictive Employment Covenants
Disputes arising out of restrictive employment covenants usually end up in court when an employee has left a company and either formed a competing business or joined an existing competitor. In those situations, employers are often concerned that the former employee will divert customers and use the employer’s confidential information to benefit the competitor. Employees are often concerned about their ability to earn a living within a particular industry.
A company concerned that a former employee will harm its business through activity that would violate a non-compete or non-solicitation agreement has the right to seek an injunction. The employee will then have the right to defend against that action by, among other things, demonstrating that the agreement is unreasonable. Employees who wish to accept a new position or start a new business that may cause them to violate a restrictive covenant also have the right to file an action requesting that a court issue a declaratory judgment finding the agreement unenforceable.
Courts will scrutinize non-compete and non-solicitation agreements very closely to ensure that they are not overbroad, are limited to protecting the employer’s legitimate business interests, do not create an undue hardship for the employee, are not harmful to the public. The focus will often be on the particular company and its relationships with its customers, the specific industry in which the business operates, the employee’s relationship with the customers, and the type of information about the business and its customers that the employee gained while employed by the company.
At Neschis & Tolitano, we litigate disputes arising out of non-compete and non-solicitation agreements on behalf of both employers faced with harm from competition by former employees as well as on behalf of employees who may wish to seek new employment or start their own business but may be hindered in those efforts by a restrictive employment covenant.Illinois Freedom to Work Act
The Illinois Freedom to Work Act, which went into effect on January 1, 2017, prohibits covenants not to compete for low-wage employees and renders them void. Under the Act, a worker is a low-wage employee if the employee’s earnings are not more than either the hourly rate equal to the applicable minimum wage or $13 per hour, whichever is greater. There are efforts underway to amend the Illinois Freedom to Work Act by, among other things, increasing the categories of employees for which restrictive employment covenants would be automatically void and placing new requirements on restrictive employment covenants. Case law regarding restrictive covenants is also constantly evolving. It is, therefore, critical to consult a lawyer knowledgeable about the current law regarding restrictive employment covenants to discuss your particular situation.Consult a Seasoned Employment Lawyer
Whether you are an employer or employee concerned about the enforceability of a restrictive employment covenant, you may need a knowledgeable attorney. At Neschis & Tolitano, we may be able to represent you. We have offices in Chicago and Des Plaines and represent employers and employees in Chicago and the surrounding suburbs. Please call us at 312-600-9797 or 847-635-7877 or complete our online form.