Breach of Non-competition Agreement Legal Services
Employment contracts often contain non-competition agreements, a type of restrictive covenant. Restrictive covenants prevent the employee from engaging in certain activities for a specified period of time after employment ends. Such contracts can be extremely beneficial to an employer and also very burdensome for the employee. When contract disputes arise over a restrictive covenant in an employment contract, it is important to know your rights. Our Chicago business attorneys handle various disputes regarding employment contracts, including disputes over non-compete agreements.
What is a Noncompetition Agreement?
A non-competition agreement is a legal document that restricts an employee from engaging in certain types of employment activities after leaving their current employer. Non-competition agreements are sometimes called “noncompete clauses” or “covenants not to compete.” They are a common type of restrictive covenant found in employment contracts.
In Illinois, noncompetition agreements are governed by the Illinois Freedom to Work Act, which was enacted in 2017. The Act prohibits employers from entering into non-competition agreements with low-wage workers. For most other employees, non-competition agreements are enforceable under certain conditions.
A non-competition agreement must be reasonable in terms of time, geographic scope, and the activities that are restricted. In other words, the agreement must be designed to protect a legitimate business interest of the employer, such as confidential information or trade secrets, and cannot be so broad as to unfairly restrict the employee’s ability to find other work.
Although non-competition agreements are legal in Illinois, they are subject to scrutiny by courts, and not all non-competition agreements are enforceable.
2022 LAW UPDATE: For non-compete agreements entered into on or after January 1, 2022, the Illinois Freedom to Work Act (IFWA) (820 ILCS 90/1 to 90/10) prohibits noncompete agreements between an employer and:
Employees earning $75,000 or less per year.
Employees the employer terminates, furloughs, or lays off due to business circumstances or governmental orders related to COVID-19 pandemic or under similar circumstances, unless the employer includes compensation equivalent to the employee’s base salary at the time of termination for the period of enforcement minus compensation earned through subsequent employment during the period of enforcement.
Employees who are: 1) covered by a collective bargaining agreement under the Illinois Public Labor Relations Act
or Illinois Educational Labor Relation Act
; or 2) employed in construction, unless the employee performs certain functions or is a shareholder, owner, or partner of the employer.
A non-compete under the IFWA is an agreement between the employer and employee that restricts the employee from performing:
Any work for another employer for a specified period of time.
Any work in a specific geographical area.
Work for another employer that is similar to the employee’s work for the employer that is party to the agreement.
It also means an agreement between an employer and employee that imposes financial adverse consequences on the employee if the employee engages in competitive activities after the employee’s employment with the employer terminates (820 ILCS 90/5).
A non-compete does not include:
A non-solicitation agreement. The IFWA expressly covers non-solicitation agreements separately from non-compete agreements.
An agreement prohibiting disclosure of trade secrets or inventions
Invention assignment agreements or covenants.
Covenants or agreements entered into by a person purchasing or selling the goodwill of a business or otherwise disposing of an ownership interest.
Clauses or an agreement between an employer and an employee requiring advance notice of termination of employment where the employee remains employed and receives compensation during the notice period.
An agreement that an employee agrees not to reapply for employment to the same employer after the employee’s termination.
The Amendment likewise prohibits customer and co-worker non-solicit agreements for employees earning $45,000 per year or less. The salary threshold will increase to account for inflation through 2037. For non-competes the thresholds will increase as follows: $80,000 by January 1, 2027; $85,000 by January 1, 2032; and $90,000 by January 1, 2037.
Enforceability of Non-competition Agreements
Non-competition agreements are only enforceable if they are reasonable in scope and necessary to protect a legitimate business interest of the employer. To determine whether a non-competition agreement is reasonable, courts consider several factors, including:
Geographic scope of non-competition agreement: The non-competition agreement must be limited to a geographic area that is necessary to protect the employer’s legitimate business interests. For example, a non-competition agreement that restricts an employee from working anywhere in the United States would likely be considered too broad.
Duration of non-competition agreement: The non-competition agreement must be limited to a duration that is necessary to protect the employer’s legitimate business interests. For example, a non-competition agreement that restricts an employee from working in their field for 10 years would likely be considered to be excessive.
Scope of activities prohibited by non-competition agreement: The non-competition agreement must be limited to the specific activities that are necessary to protect the employer’s legitimate business interests. For example, a non-competition agreement that restricts an employee from working in any job in their field would likely be considered too broad.
The non-competition agreement must have a legitimate business interest and must be necessary to protect a legitimate business interest of the employer, such as trade secrets, confidential information, or customer relationships. Additionally, the non-competition agreement must not impose an undue burden on the employee’s ability to earn a living. For example, a non-competition agreement that restricts an employee from working in any job in their field for an extended period of time may be considered overly restrictive and unduly burdensome on the employee. These factors are not exhaustive and courts may consider other relevant factors in determining the enforceability of a non-competition agreement.
How to Prove Violation of A Noncompete Agreement
A breach of non-compete agreement occurs when an employee violates the terms of a non-compete agreement by engaging in competitive activities that are prohibited under the terms of the agreement.
The key elements of a breach of noncompete include: (1) Existence of a Valid Noncompete Agreement: The first and most important element is the existence of a valid noncompete agreement between the employer and employee. The agreement must be in writing, signed by the parties, and must be supported by adequate consideration. (2) Scope of the Noncompete Agreement: The noncompete agreement must be reasonable in scope, duration, and geographic area. It must be narrowly tailored to protect the legitimate business interests of the employer, and should not be so broad as to prevent the employee from earning a living. (3) Breach by Employee: The employee must engage in activities that violate the terms of the noncompete agreement. This may include working for a direct competitor, soliciting the employer’s clients or customers, or disclosing the employer’s trade secrets. (4) Actual Damages: The employer must suffer actual damages as a result of the employee’s breach of the noncompete agreement. These damages may include lost profits, lost business opportunities, or damage to the employer’s reputation. (5) Enforcement: Finally, the employer must seek enforcement of the noncompete agreement through the appropriate legal channels. This may include seeking an injunction to prevent the employee from engaging in competitive activities, or seeking monetary damages for any losses suffered as a result of the breach.
Remedies for Breach of A Noncompetition Agreement
An employer may seek several different remedies for breach of a non-compete agreement, including but not limited to:
Injunctive relief for breach of noncompete: One of the most common remedies for breach of a noncompete agreement is injunctive relief. An injunction is a court order that prohibits the employee from engaging in the activities prohibited by the noncompete agreement. Injunctive relief may be temporary or permanent and may be granted before or after a trial on the merits of the case.
Monetary damages for breach of noncompete: The employer may also seek monetary damages as a remedy for breach of a noncompete agreement. These damages may include lost profits, lost business opportunities, and other damages that the employer can prove were caused by the employee’s breach of the agreement.
Liquidated damages for breach of noncompete: Some noncompete agreements include a liquidated damages provision, which specifies a predetermined amount of damages that the employee must pay if they breach the agreement. If the liquidated damages provision is found to be reasonable, it may be enforced by a court.
Attorneys’ fees and costs for breach of noncompete: If the non-compete agreement includes a provision for the employer to recover attorneys’ fees and costs in the event of a breach, the employer may be able to recover these fees and costs in a lawsuit.
Return of confidential information pursuant to noncompete: In some cases, the employer may seek the return of confidential information or trade secrets that the employee has taken or used in violation of the noncompete agreement.
Defenses to Breach of Noncompetition Agreement
Some possible defenses to breach of a noncompetition agreement include: (1) Unenforceability of the Agreement: If the noncompetition agreement is overly broad or unreasonable in its scope, duration, or geographic area, it may be unenforceable. Illinois law requires noncompetition agreements to be reasonable and narrowly tailored to protect the employer’s legitimate business interests. If the agreement is found to be overly restrictive, a court may find it unenforceable. (2) Lack of Consideration: In order for a noncompetition agreement to be enforceable in Illinois, it must be supported by adequate consideration. If the employee did not receive adequate consideration in exchange for signing the agreement, such as a promotion, raise, or other benefit, they may be able to argue that the agreement is unenforceable. (3) Prior Breach by the Employer: If the employer has previously breached the employment contract, such as by failing to pay the employee the wages or benefits to which they were entitled, the employee may be able to argue that the noncompetition agreement is unenforceable. (4) Public Policy: In some cases, a court may find that enforcing a noncompetition agreement would be contrary to public policy. For example, if enforcing the agreement would prevent the employee from pursuing their chosen profession or would harm the public interest, the court may decline to enforce the agreement. (5) Unclean Hands: If the employer engaged in unethical or illegal behavior that contributed to the breach of the non-competition agreement, the employee may be able to assert the defense of unclean hands.
Alternative Options for Addressing Noncompetition Agreement Disputes
Oftentimes an employment or other contract may contain provisions that require alternative dispute resolution, such as arbitration or mediation to deal with a noncompetition agreement.
Alternative dispute resolution can be more private, less costly, and a more efficient alternative to litigation. Even without a provision or agreement requiring arbitration or mediation, the parties can agree to mediate or arbitrate a non-compete dispute.
Contact Our Chicago Business Attorneys
If you’re facing issues with a breach of a non-competition agreement, our Chicago business attorneys can assist. We have significant experience in a wide range of employment contract disputes, including breach of noncompetition agreements and other restrictive covenants. Our attorneys handle breach of non-competition cases for plaintiffs, defendants, employers and employees throughout the Chicagoland area, including Cook, DuPage, Kane, Lake, Lee, McHenry, Will and Winnebago counties. Please reach out to our law firm to see how we may assist.