An Employment Agreement With A Restrictive Covenant Can Prevent An Employee From Competing And Possibly Destroying Your Company

By Corey B. Stern, Chitkowski Law Offices

This article discusses the importance and factors to consider when an employer has an employee enter into a contract restricting the employee from working for a competitor or starting its own business.

With a slight uptick in the economy, employers may be looking to add or replace employees. Simultaneously, employees may be looking for new employers or starting their own companies based upon the knowledge they obtained from their employer. In Illinois, unless the employee has a contract or union agreement with the employer, all employees are at-will, who can be terminated at any time without any restrictions preventing the employee from working for a competitor.

Consideration:

As for consideration, the law is that if the employee signs a non-compete agreement, at the beginning of employment or as a condition of keeping the current employment, then the non-compete agreement would be valid, only if there was a substantial employment thereafter. Substantial employment is a fact-based decision depending upon the number of years that were previously worked and then time worked after the non-compete agreement is signed. For example, 7 months may be considered to short and the agreement will not be enforced, but 2 years is a sufficient amount of time.

Validity Of Agreement Itself :

Whether the non-compete agreement is valid is a fact specific case and considered, in light of the following factors: (1) must be narrowly tailored to protect the employer's legitimate business interest; 2) does not prevent the employee from obtaining gainful employment in a reasonable geographical area; and 3) does not harm the public by eliminating competition.

In considering the employer's legitimate business interest, the Court would consider the following:

  • employer's near-permanent customer relationships (the length of time of the relationship/difficulty in finding and obtaining customers, type and duration of contact with the customer);
  • the employee's access and knowledge of confidential information obtained by the employer; and
  • the length of time and area of the restrictions (2 years is the most prohibitive, while generally, 1 year is accepted in most industries).

However, these factors are not limited, and there is no one factor that is determinative. Other factors include the hardships of both the employer and employee can be considered. For example, a factor that would be in the employee's favor is if the employee is prohibited from working in the same industry, even in a noncompetitive capacity, when no interest of the employer would be harmed.

Without a restrictive covenant, generally, the employee can plan, form and equip a competing corporation, while still employed with their employer. However, the employee cannot actually begin competition. Once the employee has left the employer, then the employee or the employee's corporation can compete with the former employers and solicit former customers. The law applies different restrictions to corporate officers.

Therefore, depending upon your business needs, a restrictive covenant in an employment agreement may prevent an aggrieved or over-ambitious employee from ruining your business.

-For more information, please contact Corey B. Stern at Chitkowski Law Offices at 630-824-4808 or at cbs@chitkowskilaw.com, www.chitkowskilaw.com.