Enforceability of Post-Employment Non-Compete Agreements

By Allie K. Haling

The enforceability of non-compete agreements is one of the more contested areas of the employer-employee relationship in Illinois. Under Illinois law, for a non-compete to be enforceable, generally, the agreement must be: (1) ancillary to a valid contract or relationship; (2) supported by adequate consideration; and (3) reasonably necessary to protect the legitimate business interest of the employer[1].

One specific area of concern that we have seen recently is when an employer presents an employee with a non-compete agreement to sign after he or she has been terminated. Sometimes the post-employment non-compete is presented as an independent agreement for the employee to sign during an “exit interview,” or sometimes it is grouped into other agreements, such as a “mutual understanding” agreement. Either way, these types of non-competes are generally unenforceable if they lack adequate consideration, i.e., something that the employee was not otherwise already entitled to receive.

Not all post-employment non-compete agreements are unenforceable, however, as some of these agreements may include adequate consideration. For example, adequate consideration may be present in a situation when an employee is presented monetary compensation, such as a severance payment, “in exchange for” entering into a post-employment non-compete agreement.[2] However, if an employee is presented with and asked to sign a non-compete agreement without receiving anything he or she wasn’t already entitled to in return, it is unlikely that the non-compete agreement is enforceable.

Additionally, it should be noted, as of January 1, 2017, the Illinois Freedom to Work Act prohibits employers in the private sector from ever entering into a non-compete agreement with “low-wage employees.”[3] The Act defines a “low-wage employee” as any employee who earns the greater of (1) the hourly rate equal to the minimum wage required by the applicable, federal,[4] State,[5] or local minimum wage law;[6] or (2) $13.00 per hour.

For further information regarding post-employment non-compete agreements or other employment law matters, please do not hesitate to contact us.

Disclaimer: The material contained herein is provided for information purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney.  Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.

Attorney Advertising

 

[1] Reliable Fire Equip. Co. v. Arrendondo, 2011 IL 111871, ¶16; Brown & Brown, Inc. v. Mudron, 887 N.E.2d 4374, 440-441 (Ill. App. Ct. 2008); Fifield v. Premier Dealer Servs., Inc. 2013 IL App (1st) 120327

[2] Diedrich Ins. Agency, LLC, 2011 IL App (5th) 100048, ¶13

[3] 820 ILCS 90, P.A. 99-860, eff. 1-1-17.

[4] Currently $7.25 per hour. See https://www.dol.gov/general/topic/wages/minimumwage

[5] Currently $8.25 per hour. See https://www.dol.gov/whd/minwage/america.htm#stateDetails

[6] Currently $11.00 per hour in Chicago.  See https://www.cityofchicago.org/city/en/depts/mayor/supp_info/minimum-wage.html

Menu