A bill recently introduced in the Illinois House of Representatives, the “Illinois Covenants Not To Compete Act,” would substantially alter the law regarding non-competition agreements in Illinois. In most respects, it would limit the enforceability of no-competes and make them easier for individuals to challenge. However, in certain respects, the bill would make no-competes easier to enforce. The same bill was introduced last year and went nowhere.
In pertinent part, the bill would limit the enforceability of no-competes by providing as follows:
• No-competes would be unenforceable against everyone other than a “key employee” or “key independent contractor” (categories which are actually fairly broadly defined in the bill);
• Mere continued employment would no longer be adequate consideration to support a no-compete; rather, the employer would have to provide “a material advancement or promotion” or “a material bonus or material increase” in salary; and
• There would be rebuttable presumptions that: any restriction exceeding one year is unenforceable; any geographic restriction that extends beyond the region in which the individual provided services is unenforceable; and any restriction on an individual’s ability to perform services other than services of the same type performed for that employer is unenforceable.
The bill would also make it far easier for an individual to challenge a no-compete, because it provides that any individual can bring a declaratory judgment action to challenge the enforceability of his/her no-compete and if the challenge is successful, the employer would have to pay his/her legal fees (but if the individual loses, they would not have to pay the employer’s fees).
In a related vein, the bill would make it riskier for many employers to try to enforce no-competes, because it provides that any “one way” fee shifting provision in a no-compete (i.e., a clause providing that if an employer has to incur attorney’s fees to enforce the agreement, the individual must pay the employer’s fees) shall be construed to provide for “two way” fee shifting (i.e., loser pays, regardless of which side loses).
Notwithstanding the foregoing provisions, in certain respects the bill would actually make no-competes more enforceable because it would make it far easier to establish the existence of a legitimate business interest sufficient to justify a no-compete (a high threshold to clear under current Illinois law) and because it expands the ability of judges to modify restrictions in a no-compete to make them enforceable.
Additionally, the proposed law contains a number of broad exceptions. Specifically, it would not apply to anti-raiding provisions (which bar former employees from recruiting their former colleagues); anti-solicitation clauses (which bar customer solicitations); confidentiality agreements (which protect confidential information); “employee choice” clauses in incentive compensation programs (which require the forfeiture of incentive compensation in the event an individual engages in prohibited conduct); and agreements between corporations, partnerships, limited liability corporations or partnerships, and their shareholders, partners, and members.
As of this writing, the bill has not attracted significant public attention or commentary, but we will monitor its progress in the months to come.
- Member of the Firm