Impact | Business Risk Management Blog

The Illinois House and Senate have agreed on a version of the Illinois Freedom to Work Act, which is waiting for Governor Pritzker to sign into law. The Act puts restrictions on which employees can be subject to covenants not to compete and covenants not to solicit.

What constitutes “solicitation” in the context of a non-solicitation provision? A recent decision from the U.S. District Court for Central District of Illinois attempted to shed some light on that question.

Several bills are pending in the Illinois House of Representatives and Senate that, if signed into law, could radically change the landscape of the use of covenants not to compete and covenants not to solicit in Illinois. Employers should be aware of this pending legislation because, if passed, it could have serious ramifications for businesses in Illinois. 

Several times a year, business owners tell me that restrictive covenants (such as non-competition, non-solicitation or non-disclosure provisions) are not enforceable in Illinois. That is not true. The state and federal courts in Illinois enforce restrictive covenants on a routine basis. However, to be enforced, the restrictive covenants need to have been properly drafted and kept up to date with changes in the law. Put another way, in the majority of cases where the courts do not enforce the restrictive covenants, the restrictive covenants could have been drafted in such a way that they likely would have been upheld.

The “bright line” rule for the adequacy of non-compete agreements in Illinois first announced in Fifield v. Premier Dealer Servs., Inc., just became a bit hazier for parties evaluating the enforceability of their restrictive covenants.

Last week, a federal district court judge applying Illinois law declined to void a non-compete agreement on the basis that the at-will employment relationship that was the consideration for the restrictive covenant lasted less than two years. Adopting the reasoning of three of the four federal court judges in the Northern District of Illinois that have addressed the issue, the court, in R.J. O’Brien & Associates v. Williamson,¹ concluded that the Illinois Supreme Court would reject a two-year bright line rule for the adequacy of consideration required for a non-compete agreement to be enforceable.

A recent decision from the Illinois Appellate Court for the First District reminds employers of the need to act quickly and thoroughly in investigating potential breaches of employee restrictive covenants and in taking actions to enforce their rights under those agreements.

In Bridgeview Bank Group v. Meyer, 2016 IL App (1^st) 160042, the court affirmed the trial court’s denial of an employer’s petition for a temporary restraining order against a former employee. Bridgeview Bank had employed Thomas Meyer as a senior vice president. The bank entered into an employment agreement incorporating non-compete, non-solicitation and non-disclosure provisions at the beginning of the employment relationship. 

The talent market is increasingly fluid, with many businesses following the talent development mantra “if you can’t beat 'em, hire 'em.” Poaching from a competitor is not without risk. However, there are reasonable steps that should be taken to reap the rewards of the fluidity of today’s talent pool while managing the risks. Two principal risks in “poaching” are trade secret misappropriation and interference with a contract. Some employers seek to build on the lessons learned by their competition, and to do so does not inherently violate the law. However, an employer may misappropriate trade secrets by obtaining trade secrets from its new hires.

Business Tip: Include extension clauses in your restrictive covenant agreements to ensure that the time of the restrictions will not begin to run until the employee has stopped violating the restrictions.

In order to make sure that an employer gets the full benefit of the restrictive time period in its non-competition, non-disclosure or non-solicitation agreements, employers in Illinois should make sure that such agreements contain "extension clauses." Extension clauses will extend the time period or modify the start date of the restrictive covenant in the event that an employer does not discover the former employee's breach until near the end of the restrictive time period or the employee continues to violate the restriction during litigation.