When are non-compete clauses too restrictive?

August 15, 2016

When it comes to non-compete clauses in employment agreements or employee handbooks, the first thing that comes to mind is that the position must be one that is of utter importance to the employer;  that the employee is going to access to trade secrets and other confidential information.  However, non-compete clauses are finding their way into just about every type of employment imaginable.  For instance, Illinois Attorney General Lisa Madigan recently took action against Jimmy John’s for their non-compete clauses aimed at sandwich makers.

Jimmy John’s attempted to restrict its employees from working in any establishment that makes or sells a similar style sandwich within  a 2 or 3 mile radius of a Jimmy John’s location.  This restrictive covenant was imposed on Jimmy John’s employees from management to hourly employees.  Prior to the Illinois Attorney General’s action against Jimmy John’s, the sandwich making company’s CEO had stated that the non-compete clauses would not be enforced against hourly employees.

Current Illinois case law requires that non-compete agreements be premised solely on legitimate business interests and that such clauses be narrowly tailored in terms of time, activity, and geography.  However, this has not stopped many companies from drafting overly broad non-complete agreements.  The primary reason for this is that many companies and potential employees are not familiar with the law.  This ignorance of the requirements for an effective non-compete agreement can end up being very costly.  Court enforcement of a non-compete clause against a stubborn ex-employee can skyrocket in litigation costs due to the emergency nature of stopping a former employee from working with a competitor.  Conversely, the cost of invalidating a non-compete agreement can be cost prohibitive for the former employee.  It is for this reason that Illinois courts very rarely see actions relating to non-compete agreements.

Given the expensive reality, a too restrictive non-compete agreement can expose your company to unnecessary legal liability, while an ineffective non-compete agreement can cripple your business when an employee jumps ship.  Often times, boiler plate non-competes may not pass muster when examined by the court. A judgment holding that the non-compete agreement is not enforceable may open the flood gates and require that company to hold new negotiations with every employee subject to the now ineffective non-compete agreement.

Effective non-compete agreements often consist of a balance between protecting a core part of a business while being narrowly tailoring the restriction enough so as to not overly restrict a former employee and invalidate the clause.  Due to this, it is always prudent to review a non-compete agreement prior to the restriction going into effect.  As an employer, not only should you obtain a professional that understands the limits of non-compete clauses, but your non-compete clauses already executed should also be subject to ongoing review.  Similarly, employees should seek professional advice not only before executing a non-compete agreement, but also periodically review their already executed employment contracts.  The professionals at Rock Fusco & Connelly LLC, possess the acumen and experience to help guide you through all your needs relating to non-compete agreements.