Non-Compete Agreements and Non-Management Employees

Aug 21, 2018 | Employment Contract, Federal Law, Illinois Law, Non-Compete Agreements, Non-Management Employees

A common question we are asked is whether employers may require non-management personnel to sign a non-compete agreement. The answer is yes, but there are limitations of which employers should be aware.  To be enforceable in the State of Illinois, the agreement must (1) have adequate consideration, (2) be reasonably necessary to protect the employer’s legitimate business interest, (3) not impose undue hardship on the employee, and (4) not be injurious to the public.[1] Courts will generally determine the enforceability of a non-compete agreement based on the totality of these factors. As of January 2017, however, employers are prohibited from requiring any low-wage employees under the Illinois Freedom to Work Act to sign non-competes.[2] The Act effectively protects employees earning less than $13.00 per hour or minimum wage, whichever is greater.[3]

In Fifield v. Premier Dealer Servs. Inc., the appellate court attempted to establish a bright-line rule of 2 years of continued employment to meet the consideration requirement.[4] However, this generality has been complicated by subsequent cases that departed from the rule.[5] The U.S. District Court for the Northern District of Illinois rejected Fifield’s 2-year requirement in Bankers Life & Cas. Co. v. Miller.[6] Due to contradictory holdings of the lower Illinois courts, Illinois federal courts employ a fact-specific approach.[7]

The Illinois Supreme Court has specifically held that the existence of a legitimate business interest is based on the totality of the circumstances in any case. Factors include: “the near-permanence of customer relationships, the employee’s acquisition of confidential information through his employment, and time and place restrictions.”[8] Specific limitations on an employee’s future location or the ability to perform certain tasks are then relevant under this prong. The type of industry or market at issue is also relevant because certain employees may have access to confidential information.  For example, in People v. Jimmy John’s Franchise LLC, the court found no legitimate business interest existed where low-wage, at-will employees could not obtain employment within 2 miles and did not have access to confidential trade information. [9] If imposed restrictions are reasonably necessary for the employer’s protections, they could support a showing of a legitimate business interest. Thus, non-competes are normally enforceable against skilled employees or those with significant contact with customers. Whether that is the case varies from case to case and requires judges to consider the specific facts at issue.[10]

Non-competes that include overbroad terms and deprive employees of the opportunity to secure future employment impose an undue hardship. Factors in determining whether such covenant is reasonable include social utility, time limitations, activity restrictions, and geographical scope.[11] It should be noted, however, that even overly broad agreements can be modified by the court to resolve ambiguities.[12]

Courts do not analyze non-compete agreements between licensed professionals such as physicians any differently than comparable provisions between commercial parties. For example, in Mohanty v. St. John Heart Clinic, the Illinois Supreme Court upheld the validity of restrictive covenants in physician employment contracts, noting that non-competes are ultimately regarded as ordinary private contracts,[13] and enforceability is based on reasonableness of the terms.[14] Like non-competes in other industries, restrictive covenants in the “medical professional services” setting are valid so long as the necessary conditions are met.[15] Accordingly, parties will be expected to fulfill their obligations under the contract.

The Law Offices of McLaughlin & Associates can provide legal consultation for employers who are considering having their non-management employees sign non-compete agreements.  For more information contact Kenneth S. McLaughlin, Jr. at 630-230-8434.

[1] Reliable Fire Equip. Co. v. Arredondo, 965 N.E.2d 393, 397 (Ill. 2011).

[2] Public Act 99-860, 2015 Ill. SB 3163 (2017).

[3] Id.

[4] 993 N.E.2d 938, 942, 993 (Ill. App. 2013).

[5] See e.g., McInnis v. OAG Motorcycle Ventures, Inc., 35 N.E.3d 1076, 1084 (Ill. App. 2015).

[6] Bankers Life & Cas. Co. v. Miller. N. Dist. Ill. 14 CV 3165, Feb. 6. 2015, (unpublished opinion).

[7] Montel Aetnastak, Inc. v. Miessen, 998 F. Supp. 2d 694, 716 (N.D. Ill. 2014).

[8] Reliable at 403.

[9] See People v. Jimmy John’s Franchise LLC, Circuit Court of Cook County, Illinois, No. 2016-CH-07746.

[10] Cambridge Eng’g, Inc. v. Mercury Partners 90 BI, Inc., 879 N.E.2d 512, 523 (Ill. App. 2007).

[11] Tower Oil & Tech. Co. v. Buckley, 425 N.E.2d 1060, 1065 (Ill. App. 1981).

[12] See e.g., Baird & Warner Residential Sales, Inc. v. Mazzone, 893 N.E.2d 1010 (Ill. App. 2008).

[13] See 866 N.E.2d 85, 92 (Ill. 2006)

[14] Id. at 94.

[15] Id.; cf. Reliable Fire Equip. Co. v. Arredondo, 965 N.E.2d 393, 397 (Ill. 2011).