Non-compete covenants (commonly known as a "covenant not to compete" or CNC) have been a legal component of the commercial world for decades, but the enforcement landscape has always unpredictable. Just because you hold in your hand a signed copy of a non-compete agreement from a former employee or business partner does not mean you will be able to make the terms stick, especially in Illinois.
On the face of it, the objective of a non-compete agreement is to prevent a former employee from benefitting unfairly from proprietary information or customer relationships bootlegged from their previous employer. Especially in areas such as sales or product development, an ex-employee can wreak havoc by leveraging knowledge acquired by working for you. This may include customer databases, confidential pricing, proprietary trade secrets and other exploitable information. In a sense, an ex-employee working as an adversary allows them to achieve competitive parity with your business without the years of blood sweat and tears you have invested.
For all these reasons, it makes sense to set up roadblocks to such threats before they materialize. In an ideal world, the non-compete agreement would make a departing employee think twice about violating its parameters.
In theory, a CNC proscribes an employee from working for a direct competitor (or sometimes in the same industry) for a defined period of time. It may also specify other parameters, most commonly a geographic area. In practice, however, the mere existence of a signed non-compete document does not remotely guarantee that you will be able to enforce the document in the case of an unfriendly parting of the ways.
Because the U.S. legal system places a high value on the right of a worker to earn a living, it is essential that a CNC be written so that it will be perceived as fair to both parties.
What can go wrong?
In a nutshell, a restrictive covenant needs to stake out a territory that the court will not perceive as overly restrictive. In other words, the court will determine whether the need to protect the employer overrides the prerogative of the employee to work. A CNC is most likely to be overturned because it reaches beyond what the court believes is reasonable.
Although the boundaries of "reasonable" are subjective by nature, that doesn't mean that the legal interpretation of a CNC is nothing but a free for all. There are a number of guidelines that predict how a judge will view any given non-compete agreement in court.
The primary test of a non-compete agreement is whether there is a sound basis for imposing it in the first place. First and foremost, the court needs to see a protectable interest as the basis of the document. Most courts will frown on a CNC that appears to be merely punitive or an instrument of intimidation.
The nature and scope of the business itself are the other core considerations, and they are intrinsically linked to establishing the key restrictions in the document. Without considering these fundamentals, the duration of the ban and any geographic restrictions may be seen as arbitrary. It is essential to consider these aspects of the relationship before setting terms.
Beyond the quality of advocacy and the vicissitudes of the judicial system, it is the integrity of your particular non-compete agreement that will determine its enforceability in court. The ideal scenario, of course, is to build a CNC that fairly protects your business interests as well as those of employees - and will never see the inside of a courtroom.
Bellas & Wachowski has been helping small business owners manage employment law challenges for over 40 years. For more information on restrictive covenants or other areas of business law, visit our website or contact George Bellas at 823-9030 x219.
