Non-competition agreements (“non-competes”) have long been viewed as viable means for Chicago area business owners to prohibit former employees from taking confidential information and using it to unfairly compete against the business. Non-competes are actually prohibited in some states, but not Illinois.
Illinois allows the use of non-competes with some limitations. Illinois employers are allowed to use non-competes provided they reasonably protect the employer’s legitimate business interests. What this means has been left to the courts, and there has been a steady erosion of the effectiveness of non-competes by limiting the scope of those agreements.
Illinois has passed several laws recently which limit the effectiveness of employee non-competes and which should be of concern to Chicago area business owners:
- The term of the non-compete has been limited to two years.
- “Low wage” employees are now exempt from non-competes if they make less than $15 per hour.
- In some situations employers are required to pay their ex-employees during the non-compete period.
- If an employee is terminated without cause, the non-compete may be void.
- The law of the state where the employee works controls the terms of the non-competes.
On the federal level, there are laws proposed that would abolish the use of non-competes for those employees who are classified as nonexempt under the Fair Labor Standards Act.
Businesses such as Jimmy John’s and WeWork have felt the impact of the new laws. The Illinois Attorney General has pursued enforcement actions against those employers who have used non-competes to restrict with low-wage employees from working with competing businesses.
Given the growing number of limitations placed on non-competes, employers in the Chicago area may need to rethink their strategies for using non-competes to prevent their former employees from unfairly competing. Long-used form agreements may need to be rethought, alternative ways to prevent unfair competition may need to be explored, and existing agreements with key employees may need to be redrafted.
Companies operating in multiple jurisdictions should revisit their non-compete agreements, particularly if they are using the same template agreement across their organization. Non-competes that are lawful in one state may now expose the employer to liability if signed by, for example, a Washington-based employee. Employers should consider working closely with experienced Chicago business lawyers to ensure that any non-competes protect the employers’ interests rather than endanger them.
Employers may also want to consider whether other types of post-employment restrictions, such as non-solicitation or nondisclosure agreements, could achieve their goals. Notably, the growing chorus of state non-compete laws generally do not apply to agreements prohibiting former employees from soliciting the employer’s employees or customers or prohibiting disclosure of the employer’s confidential information. In some instances, nondisclosure and nonsolicitation agreements may be equally effective as non-competes in protecting the employers from unfair competition. Employers might also consider agreements that do not expressly prohibit an employee from working for a competitor, but encourage them not to compete.
If your business wants to protect itself from theft of trade secrets or confidential information (such as customer lists), the best advice is to consult with experienced Chicago business lawyers such as those at Bellas & Wachowski. We have been serving Chicago area businesses for over 40 years and have the experience to advise business owners on a host of legal issues.