Can I Require My Employees to Sign Non-Compete Agreements?

non-compete, DuPage County contract lawyersIn today’s highly competitive world, many employers insist that their employees sign non-compete agreements or NCAs. Also called non-competition agreements, these documents are especially popular for employers who hire workers with unique abilities or specific talents. In general, employers have the right to attempt to limit the impact to their brand caused by an employee leaving, but a non-compete agreement could be declared unenforceable if an employer overreaches. Put simply, NCAs can help protect your company, but they must be used properly.

The Basics of Contract Law

If you intend to have your employees sign an NCA, you probably expect the document to be a valid contract. This means that the NCA must meet the requirements of any other contract. Under Illinois law, these requirements are an offer, acceptance, and consideration for both parties. Basically, both sides must reach an agreement to exchange something for another thing—in most cases, the trade is a form of payment in exchange for goods or services. “Consideration” refers to what each party receives. For example, a purchase at a grocery store is essentially a simple contract. The store offer eggs for sale at a specific price—the “terms” of the contract. By handing over your money, you accept those terms. The store receives your money as the consideration, and you receive the eggs as your consideration.

In the past, the consideration offered in exchange for signing a non-compete agreement was the continuation of employment. Essentially, “sign this and you will be allowed to work here.” Unfortunately, this led to employers hiring certain employees for a very short period of time, requiring them to sign NCAs, then terminating them, leaving them without the ability to find work in their field. In 2013, Illinois courts determined that such practices were unethical, and two years of continued employment was found to be sufficient consideration.

Other Important Factors

Under Illinois law, there are generally four factors that will determine the viability of your NCA. If any of the four is found to be lacking, the entire agreement may be set aside:

  • Scope: The scope of your NCA is important, especially if your business operates in a narrow field. It is reasonable to require NCAs for employees with uncommon or unique training. However, it is unreasonable to ask minimum-wage cashiers or laborers to sign NCAs to stop them from doing similar work at another company.
  • Legitimate business interests: It is not enough to want an NCA; you must have something to protect. In many cases, this “something” might be proprietary interests, processes, or information that could damage your company if it was given to a competitor.
  • Area: The geographic factor of an NCA is becoming more complex in the digital age, but your NCA still cannot be overly restrictive. For example, it is understandable that your NCA might prevent an employee from working for a competitor in DuPage County, but trying to restrict competition in the entire state of Illinois is less understandable.
  • Duration: The average NCA is set up to last for two years or less. Drafting an agreement that lasts longer will increase the chances of it being deemed invalid on the basis of unconscionability.

If an NCA is overbroad on any of these factors, it could be considered “restraint of trade.” This will nearly always result in the agreement being unenforceable. So, the answer to the question is “Yes.” You can require certain employees to sign a non-compete agreement, but it will only be enforceable if the terms are reasonable.

A Wheaton Contract Attorney Can Help

For more information about non-compete agreements or any other business contracts in Illinois, contact a DuPage County business lawyer. Call 630-665-2500 to schedule a confidential consultation at Stock, Carlson, Oldfield & McGrath LLC today. We will work with you in developing legally sound, enforceable business agreements that are designed to protect you and your company.

Sources:

http://www.businessdictionary.com/definition/restraint-of-trade.html

http://www.illinoiscourts.gov/circuitcourt/civiljuryinstructions/700.00.pdf