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Noncompetition Clauses

Over the years, Illinois courts have struggled to balance the interests of businesses to protect their trade secrets and client base with the rights of employees to pursue their professional aspirations and to earn a living. Covenants-Not-to-Compete, also known as restrictive covenants or noncompetition clauses, can serve these conflicting needs as long as they are narrowly drafted. Such a covenant must be reasonably necessary to protect the employer from improper or unfair competition.

In deciding whether a noncompetition clause is reasonably necessary, the courts consider three factors: (1) the employer's need to protect a legitimate business interest; (2) the hardship or injury to the former employee; and (3) the likelihood of injury to the public. To add to the court's considerations, a restrictive covenant is generally evaluated on the basis of geography, time, and activity.

In general, a legitimate business interest cannot avoid routine competition or cannot stop a former employee from competing for the company's customers. However, a company may protect itself if its former employee acquired confidential information by virtue of his or her employment and later attempted to use the information for his or her benefit, or if the customer relationship was near-permanent due to the nature of the business and the former employee would not have had contact with the customer in question but for the employer.

The reasonableness of a geographic limitation depends on the facts of each case. For instance, a geographic limitation of 30 miles around the Chicago area was found by one court to be unreasonable, while a 250-mile limitation around New York City was held by another court to be reasonable. The general rule is that the larger the geographic limitation, the more likely that it will be held to be enforceable if the time and/or activity restrictions are more narrowly drawn. Even if the covenant does not contain a geographic limitation (which is not recommended), the restrictive covenant is not void. It simply makes the other restrictions more important to the issue of enforceability.

The amount of time that a former employee is restricted by the covenant must be determined based on the employer's legitimate interests. In one case, a two-year time limitation was held to be reasonable where the evidence showed that it took the company one to three years to establish a major account.

The activity restrictions appear to be given more weight by the courts than the other factors. If a restriction bars a former employee from pursuing his or her line of work altogether, it will likely be found unreasonable. Activity restrictions will be allowed if they only restrict a former employee from dealing with the customers that he or she dealt with for the employer.

Finally, the courts appear to gloss over the injury to the public element of their test and look instead to the hardship to the former employee. If a restrictive covenant is designed to protect the legitimate business interests of an employer and goes no further, then it will be considered enforceable. However, if it goes further or completely bars a former employee from engaging in his or her trade, it would go beyond the protection of legitimate interests and will not be enforced.

This website is not intended to constitute legal advice or the provision of legal services. By posting and/or maintaining the website and its contents, Lucas Law does not intend to solicit business from clients located in states or jurisdictions outside of Illinois wherein Lucas Law or its individual attorney(s) are not licensed or authorized to practice law.

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