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CONSEQUENTLY, ILLINOIS EMPLOYERS SHOULD
review any non-compete agreements with their employees and
their onboarding materials to ensure compliance with the Act.
Similarly, employee handbooks and human resources manuals
should be updated to reflect this change. In addition, practitio-
ners should become aware of the general attributes of Illinois
non-compete agreements to provide context and obtain a greater
understanding of the Act.
General Overview of Current Illinois Non-Compete Agreements
Covenants not to compete, covenants not to solicit, and covenants
not to disclose confidential information represent several types of
restrictive covenants seen most often in employment agreements.
In addition to meeting the requirements of the Act, for a non-
compete agreement to be enforceable in Illinois, it must be (1)
reasonably necessary to protect the legitimate business interest of
the employer, (2) ancillary to a relationship or valid contract, and
(3) reasonably supported by adequate consideration.
Reliable Fire
Equipment Co. v. Arredondo
, 2011 IL 111871.
To protect a legitimate business interest, the employer must
prove this interest is reasonable based on a totality of the circum-
stances. Factors include the employer’s customer relationship
being nearly permanent, the employee acquiring confidential
information while working, and the restriction–in the form of
duration, geographic scope, and type of activity–being created to
appropriately protect the employer’s interest.
Factors to determine whether duration is reasonable include
hardship to the employee, the length of time for the employer
to obtain new customers or clients, and the non-compete agree-
ment’s effect on the public.
Tower Oil & Technology Co. v. Buckley
,
99 Ill. App. 3d 637 (1981). Provisions relating to geographic area
regarding a former employee’s employment opportunities must be
narrowly tailored to only protect the employer’s legitimate business
interest.
AssuredPartners, Inc. v. Schmitt
, 2015 IL App (1st) 141863.
In its simplest construction, adequate consideration is an act
or promise that benefits or hurts one party.
Bires v. WalTom, LLC
,
662 F. Supp. 2d 1019, 2018 (N.D. Ill. 2009). Recently, the Illi-
nois Court of Appeals found that two years of employment by an
employee is considered adequate consideration to enforce a non-
compete agreement.
Fifield v. Premier Dealer Servs.
, Inc., 2013 IL
App (1st) 120327.
Unfortunately, the Northern District of Illinois has clouded
the decision in
Fifield
. One decision specifically agreed with the
decision in
Fifield
; another found that employment for less than
two years was considered adequate consideration.
Instant Tech v.
DeFazio
, 40 F. Supp. 3d 989 (N.D. Ill. 2014). Moreover, two
courts found that the bright-line test of two years in
Fifield
was
not binding and predicted the Illinois Supreme Court would be
unlikely to adopt the test.
Traffic Tec, Inc. v. Kreiter
, 2015 WL
9259544 (N.D. Ill. Dec. 18, 2015);
Banker Life & Casualty v.
Miller
, 2015 WL 515965 (N.D. Ill. Feb. 6, 2015).
Two appellate court decisions have also reached differing con-
clusions about
Fifield
. One case found the two-year bright-line
rule as binding, while the other decision found the bright-line
rule controlling if no additional consideration is given in the non-
compete agreement.
Prairie Rheumatology v. Maria Francis
, 2014
IL App (3d) 140338;
McInnis v. OAG Motorcycle Ventures, Inc
.,
2015 IL App (1st) 142644. Guidance has been provided about
defining adequate consideration to enforce a non-compete agree-
ment in addition to the standard set forth in
Fifield
. The Northern
District of Illinois has held that compensation, including raises
and bonuses, are factors to determine if adequate consideration has
been given.
LKW Corp v. Thrasher
, 785 F. Supp. 2d 737 (N.D. Ill.
2011). Compensation, stock options, a signing bonus, or a grant
of additional paid time off are relevant factors when analyzing the
adequate consideration requirement.
Under the Act, a “covenant not to compete” is defined as any
agreement between an employer and low-wage employee prevent-
ing the low-wage employee from (1) performing work for another
employer for a specified period of time, (2) any work in a specified
geographical area, or (3) performing work that is “similar” to the
low-wage employee’s current work.
The Act fails to address two important questions that will
lead to additional unsettled questions of law and fact, which will
need further clarification by Illinois courts or future legislative
action. First, how will the law potentially affect non-solicitation
agreements? Second, how broad or narrow will “similar” work
be defined?
Effective January 1, 2017, the Illinois Freedom to Work Act (SB 3163) (the Act)
prohibits private sector employers fromentering into a covenant not to compete
with any “low-wage employee.” This term is defined as an employee who earns
the greater of (1) theminimumwage from federal, state, or local law, or (2) $13.00
per hour. Currently, the federal minimumwage is $7.25 per hour, while the state
of Illinois and Cook County minimum wage is $8.25. Therefore, a non-compete
agreement involving all Illinois minimum wage employees as well as all newly
defined low wage employees is “illegal and void” under the Act.
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