Non-compete agreements are contracts in which one party agrees not to compete in the marketplace against another party. Although most often seen in the employment context, non-compete agreements also often appear as part of buying and selling a business.
In Illinois, courts generally start from the premise that non-compete agreements are disfavored. We try to have an open, competitive economy, and non-competes are seen as monopolistic and creating restraints on trade. They can, however, be enforceable if they meet certain requirements.
In reviewing a non-compete, courts generally looking to see whether it is reasonable. The difficulty comes in determining what “reasonableness” means. Some factors include: (1) how long will the restricted period last; (2) what geographic area does the restriction cover; (3) does the enforcing party have a legitimate business reason for keeping the other party out of the market.
The first is generally easy to determine. Courts tend to enforce these agreements for 2 years (in the employment context), but could potentially allow enforcement for as long as 10 years in a situation where someone sells a business and agrees to a non-compete as part of the sale.
The reasonableness of the geographic area is usually tied to the third prong: is there a legitimate business reason for the restriction. In analyzing these, courts consider such things as: (a) the position the person held during their employment; (b) the type of industry; (c) how much time, effort, and money are spent training employees and developing relationships with customers; and (d) whether the company has any confidential or proprietary information that needs to be protected from competitors. But this is not an exhaustive list. A recent Illinois Supreme Court decision makes clear that this inquiry is based on the “totality of the circumstances,” and that there is no definitive list of what makes a non-compete enforceable or not.
Non-competes also take various forms. Check back for future posts on the difference between non-competes, non-solicitation agreements, and confidentiality agreements.