Business owners often use non-compete agreements to protect their brand and trade secrets. Previously reserved for high-level executives, these contracts have even made their way into the “lower-income” sector. However, state law prohibits the use of non-compete agreements in some situations. Furthermore, such agreements must meet certain criteria to be considered enforceable by the courts. Where does your company stand on its use of “covenants not to compete?” The answer may surprise you.
What is a Non-Compete Agreement?
While non-compete agreements are not stand-alone documents, they do frequently make an appearance in other types of contracts, such as employment agreements and contracts for the sale or purchase of a business. Used to protect things like a company’s trade secrets, marketing tactics, client or customer data, and other sensitive business information, they prohibit the signer from working in a specific industry, trade, or geographical location. It may also prohibit the singer from working with specific competitors (prospective employers).
Examining the Rules for Non-Compete Agreements
Prior to the beginning of 2017, non-compete agreements only needed to be considered “reasonable” to be enforceable. As defined by the Illinois Supreme Court, non-compete agreements are only reasonable when they:
- Require no restrictions greater than necessary to ensure the protection of an employer’s legitimate business interest (which can only occur if a legitimate business interest exists);
- Do not impose undue or unnecessary hardship on the employee; and
- Are not directly or indirectly injurious to the public.
It is important to note that the rules of enforceability may not always be applied the same in each situation. For example, a non-compete agreement may meet all of the rules and requirements, but if the employee did not acquire confidential information during their employment, the contract may be considered void and unenforceable by the courts.
The passage of the Illinois Freedom Act, which occurred in 2016, places some additional restrictions on non-compete agreements as well. According to Illinois state law, low-income employees (defined as those who make the greater or either minimum wage or $13 an hour) cannot be asked to enter into a non-compete agreement, even if they have access to sensitive or confidential trade or industry secrets. However, this law does not apply to non-compete agreements signed before the Act’s passage. In that case, the original criteria would apply.
Our Wheaton Business Law Attorneys Can Assist Your Company with an Enforceable Non-Compete Agreement
To get ahead in today’s competitive market, business owners need to carefully protect their trade and industry secrets. Non-compete agreements can help, but only if they are truly enforceable. Backed by more than 40 years of experience, the DuPage County small business lawyers at Stock, Carlson, Oldfield & McGrath, LLC can review your current agreement to determine its enforceability and assist you with closing loopholes. If you have not yet drafted a non-compete agreement, we can help to ensure yours is enforceable, right from the start. Schedule a personalized, no-obligation consultation to learn more. Call 630-665-2500 today.