​What Is a Non-Compete Agreement?

​What Is a Non-Compete Agreement?

A non-compete agreement is a common contract between businesses and their employees, also called a covenant not to compete. These contracts prevent employees from leaving their employment and using their skills and knowledge to compete in the same market as their former employer.

When a company has non-competes in place and a former employee breaches the terms of the agreement, legal disputes and litigation can arise. It is not always as easy to enforce a non-compete as many business owners imagine. Companies can face obstacles when seeking relief from employees who wrongfully compete with them. Former employees can find that legal action can threaten their ability to make a living.

If your company experienced a breach of a non-compete agreement, or if you are being sued for allegedly breaching such an agreement, contact a business litigation attorney as soon as possible. They can advise you of your legal options regarding the non-compete.

Non-Compete Overview

An employee who signs a non-compete agreement agrees that should the employment relationship end for any reason, they will not take business from their former employer. These contracts are common at the beginning of an employment relationship, and terms include specific restrictions on former employees from operating similar businesses within the geographic area of the former employer. These agreements are usually in place for one to three years following the termination of the employment relationship.

Non-competes are critical to protecting companies from unfair competition. When a business trains an employee and provides insight into industry standards, processes, and client lists, they can experience significant losses if an employee leaves the company and uses all of this information to their advantage.

Companies must properly train and inform their employees, so non-competes are an important contractual tool to help ensure their employees do not turn around and use their training against the business through direct competition. Employers use these agreements across many industries, including business executives, warehouse workers, medical professionals, and many more.

When an employee breaches a non-compete agreement, employers can seek legal relief by filing a lawsuit in civil court. However, this can often be an uphill battle due to questions about the agreement’s enforceability. If your company needs to take legal action against a former employee regarding competition in breach of a non-compete, or if you are being sued for violating a non-compete agreement, contact a breach of contract attorney immediately.

On the other hand, vague or overly broad non-competes can prevent former employees from working in their chosen fields. A former employee who faces legal action for violating a non-compete agreement after accepting a new job should immediately contact a business lawyer for a thorough review of their options. 

Are Non-Compete Agreements Enforceable In Court?

Non-compete agreements generally fall under state law, and each state has different standards for when this type of contract is enforceable. Unsurprisingly, companies cannot have employees promise to never again work for a competitor or start a competing business in their chosen industry and location. Therefore, many state laws have limitations to render a non-compete enforceable.

For example, a non-compete must meet requirements to be enforceable under Illinois law. Specifically, the scope of the agreement must be reasonable under the circumstances. The law seeks to balance the interests of the employer and former employee while considering the general public’s well-being.

The requirements for a non-compete vary from state to state but may include:

  • The agreement must provide reasonable protection for the employer’s business interests.
  • The agreement must not create an undue hardship on the ability of the former employee to earn a living in their chosen profession or trade.
  • The agreement must not deprive the general public of services or competition for services within an industry.

When deciding whether to enforce a non-compete agreement, Illinois courts will look at the specific facts of each situation, referred to as the “totality of the circumstances.”

Factors that courts consider when analyzing the enforceability of non-competes might include:

  • Whether the employee obtained confidential information during their employment
  • The permanence of client or customer relationships
  • The restrictions on time and location of the former employee’s competition

Generally, a court must find that a non-compete serves to protect an employer’s legitimate business interests, including client relationships and confidential information.

A company cannot simply have a non-compete because it does not want additional competition in the market, as this restricts trade. An agreement must not exceed the geographical or temporal scope necessary to protect the company’s legitimate business interests.

New FTC Proposals

As of the beginning of 2023, the Federal Trade Commission (FTC) announced a proposed rule to ban all non-compete agreements and clauses across the United States. If they enact this rule, it will prohibit any employers from subjecting employees or even independent contractors, paid or unpaid, to any type of non-compete restrictions. It can also force employers to rescind existing agreements.

Business litigation attorneys will watch this rule proposal closely to see if there is a national push against non-competes. Until then, state laws will still apply to existing non-competes and resulting litigation. 

What Is Illinois Law On Non-Compete Agreements?

Illinois laws on non-compete agreements changed significantly under the Freedom to Work Act.

Some of the most important changes include:

  • Employees must make or expect to make annualized earnings of $75,000 for employers to enter into a non-compete agreement with them. This threshold amount will increase to $80,000 on January 1st, 2027, $85,000 on January 1st, 2032, and $90,000 on January 1st, 2034.
  • Similarly, employees must earn or expect to earn at least $45,000 for employers to enter into a non-solicitation agreement with them. For employers to enter into a non-solicitation agreement. That amount will increase to $47,500 at the start of 2027, $50,000 for 2032, and $52,500 in 2037.
  • The Act prohibits employers from entering into either a non-compete or a non-solicitation agreement with any employee that gets fired, laid off, or furloughed as a result of the COVID-19 pandemic. This restriction applies whether the employee is separated from the employer because of governmental orders or business circumstances, and it also applies to circumstances similar to the COVID-19 pandemic. That said, the Act does allow such agreements if the employer pays the employee their base salary at the time of the separation for the period of enforcement minus any compensation the employee earns during the period of enforcement from another job.
  • The law doesn’t allow employers to enter into non-compete agreements with individuals covered under a collective bargaining agreement under the Illinois Public Labor Relations Act or the Illinois Education Labor Relations Act. This prohibition also applies to people in the construction industry unless they are shareholders, partners, or owners.

    In addition, it does not unless they perform the following functions:
  • Management
  • Engineering
  • Architecture
  • Design
  • Sales
  • The new law requires that any non-compete or non-solicitation agreement meet the following conditions to be reasonable and enforceable:
  • The employee gets adequate consideration for the agreement
  • The agreement is in light of an existing and valid employment relationship
  • The agreement does not go further than what is necessary to protect the legitimate business interests of the employer
  • The agreement does not impose an undue hardship on the employee
  • The agreement is not contrary to the public interest
  • For a non-compete or non-solicitation agreement to be enforceable, the employer must tell the employee to consult with a lawyer before entering into the agreement and give the employee 14 days to review it.
  • If an employee wins a claim related to the enforcement of a non-compete or non-solicitation agreement filed by their employer, the employee can collect all costs and reasonable attorney’s fees related to the action.
  • In some cases, courts can reform or remove provisions of a non-compete or non-solicitation agreement rather than hold the entire agreement unenforceable.

Other states may set different standards for no-compete contracts with employees or the former owners of businesses you purchased. Call a business lawyer today to review the laws that govern your situation.

Non-Compete Litigation

Litigation involving non-compete agreements can be complex and fast-paced. If your company suspects a breach of a non-compete or if a former employer accuses you of violating a non-compete, you must act quickly. Hiring a lawyer for business litigation is the first step a business should take in this process.

A business litigation attorney can review whether the company has proper legal and factual support for a lawsuit. You will need to investigate the suspected breach of the agreement and gather sufficient evidence to prove the former employee’s violation. Taking quick action to investigate and stop a violation demonstrates that your company is taking the matter seriously due to a legitimate business interest. Taking quick action to protect yourself from a frivolous accusation of violating a no-compete agreement can allow you to move forward with your life and earn a living without a former employer’s interference.

Gathering Evidence

An experienced attorney can help build your case through evidence, including:

  • Employment applications and offer letters
  • Employment contracts the employee signed
  • Non-competes or non-solicitation agreements in place
  • Severance agreements or any other employment documents that reference non-compete clauses

A lawyer can also conduct witness interviews as part of the investigation. Witnesses might include those who worked with the employee and observed the employee soliciting business away from the employer or planning to establish a competing operation with the employer’s clients. Clients or customers themselves can also be witnesses if the former employee tried to lure their business away.

Often, electronic evidence plays a major role in non-compete litigation. Much of a company’s trade secrets or other proprietary or confidential information gets stored electronically for employees to access.

If your company suspects a former employee is violating a non-compete agreement, an attorney can walk you through the steps you should take.

These can include immediately:

  • Ensuring the former employee cannot access their computer files or network
  • Preserving all of the former employee’s hard drive files, emails, cloud storage, or information on a company-issued phone or laptop
  • Reviewing and preserving security footage if an employee printed out electronic information and left the premises with such files

A skilled lawyer can also hire IT professionals who can conduct forensic investigations of the employee’s electronic activity, hard drives, and communications.

A lawyer can tell you how to preserve any evidence that an employee violated the non-compete agreement. You do not have a valid case for litigation if you lack evidence of a breach of the contract in the first place.

Proving Enforceability

Next, your business litigation lawyer should review the non-compete agreement or clause in question to determine its enforceability in light of current state laws and court precedents. This can require complex legal analysis, but your lawyer must present a clear argument about why the court should enforce your agreement or not. If you can prove this, you can seek legal relief, including damages and injunctive relief, through a lawsuit.

Employee Defenses

Employees can and regularly defend themselves against lawsuits regarding breaches of non-compete agreements. Courts will consider the defenses raised, and your company should be ready to counter such defenses with the right legal representation.

Defenses can vary depending on the circumstances, nature of the alleged violations, and state law.

Some common defenses raised include:

  • The non-compete does not protect a legitimate business interest of the employer
  • There was not sufficient consideration to support the non-compete agreement
  • The terms and restrictions of the non-compete, including the timeframe and geographical scope, were overly broad and not reasonably necessary to protect the employer’s interests
  • The employer materially breached the employment agreement in another way, such as by failing to provide proper compensation or violating immigration laws

Your attorney can raise or anticipate any of these defenses after reviewing your circumstances, depending on which side of the dispute you find yourself.

Considerations Before Litigation

Always discuss possible litigation with a skilled attorney immediately if you suspect a former employee has violated a non-compete. Always call a business lawyer right away if a former employer accuses you of violating a non-compete clause. Your lawyer can help you decide whether litigation is the best course of action.

Some considerations include:

  • Whether you have sufficient evidence of the violation
  • Whether the agreement is enforceable under state law
  • The effects litigation may have on your workforce or reputation in the industry
  • The risks of unsuccessful litigation, including the effects it might have on other existing non-competes with current employees
  • Whether similar lawsuits have been successful in the past

You will want to weigh these carefully with experienced legal guidance before moving forward with a lawsuit. 

Hire An Experienced Business Litigation Attorney For Non-Compete Concerns

If you are an employer with legal issues or questions related to non-compete agreements, or if you are being sued for allegedly violating a non-compete agreement, speak to a lawyer as soon as you can. What you gain by shutting down the unfair competition and protecting your rights could more than make up for the cost of hiring a business attorney to represent you. The same is true if you are being sued for violating a non-compete agreement. Get a business litigation attorney involved as soon as possible.

If the upfront cost of hiring a lawyer factors into your decision, some business law firms offer alternative fee arrangements, including contingency fees, mixed fees, and blended fees, that might suit your needs. King & Jones has offered such creative fee arrangements to meet the needs of its clients for decades. 

The complicated laws regarding non-compete agreements can change quickly, protect your rights and seek qualified legal counsel immediately. The right business litigation law firm in Chicago can advise whether pursuing litigation is the best path and handle every step of your lawsuit.