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.
Part of the challenge a business faces in drafting restrictive covenants is trying not to over-reach. A business has a much better chance of having a narrowly tailored restrictive covenant enforced than one that is overbroad. Furthermore, while an overbroad restrictive covenant may have some deterrent effect, if it is invalidated by a court, there could be severe consequences for the business.
For example, non-competition provisions contain geographic restrictions. As opposed to restricting the employee from competing anywhere in Illinois or in the United States (unless such a restriction is appropriate), the employer should spend some time to determine the proper area in which competition should be prohibited by that particular employee. Some of the factors a business should consider in making this determination include (1) where the company does and gets its business, (2) where the employee is located, (3) the employee’s role, (4) where the employee performs his or her job responsibilities, (5) the consequences of what would occur if the employee began competing against the employer and (6) other mechanisms that may be available to curb the employee from competing, such as other restrictive covenants. In addition, the geographic scope that is appropriate for one employee may not be appropriate for another employee. In the end, the narrower and more reasonable the geographic restriction, the more likely the non-competition provision will be enforced by a court.
Similarly, non-solicitation provisions frequently prohibit employees from soliciting customers and potential customers of the company for a period of time after the employee has left the company. However, many times courts are reluctant to enforce non-solicitation provisions against customers or potential customers that the employee has never had any interaction with or about whom the employee does not have any confidential or particular information. To make non-solicitation provisions more enforceable, companies should consider how “customer” and “potential customer” are defined in that provision. Depending on the business and the employee, one consideration may be to define a “customer” to include someone the employee has worked with in the 12 months prior to their departure or a “potential customer” as someone the employee has attempted to sell X to in Y months prior to their departure.
Finally, non-disclosure provisions generally contain a boilerplate definition of “confidential information.” However, some courts have found that general boilerplate definitions of “confidential information” may not adequately inform the employee of the exact information that company considers to be confidential or a trade secret. Companies should think about including, in addition to the boilerplate definition, a list of specific things the company considers to be confidential and a trade secret.
In addition to the issues identified above, there are many other steps businesses can take to draft restrictive covenants that courts should find to be enforceable. Restrictive covenants are one of many tools a business is able to use to keep its employees from unfairly competing against them when they leave. Instead of recycling old agreements with restrictive covenants or using a one-size-fits-all approach, businesses of any size should make sure the restrictive covenants they use are drafted in such a way that they will be upheld in court.