What Are Non-Solicitation and Non-Compete Agreements?
Chicago Business Attorney Explains Restrictive Covenants
Restrictive covenants are agreements that limit a party’s ability to take certain actions. In business law, the most common examples of such covenants are non-solicitation and non-compete agreements, as well as non-disclosure clauses. Usually, these agreements are part of an employment contract and they restrict an employee’s ability to work with or start a competing business. The extent of these restrictions depends on the terms of the individual agreement and the employee’s work description. However, Illinois law limits the power of restrictive covenants, especially when they severely inhibit a person’s ability to seek employment. Therefore, it is crucial for business owners to consult with an attorney before asking employees to sign non-solicitation or non-compete agreements.
The Chicago attorneys at LAD Law Group can assist you with all of your business contract needs. We can review your employment agreements and advise you on matters relating to any restrictive covenants you wish to include. If an employee violates a non-compete agreement, then a business litigation lawyer from our law firm could assist you in filing a lawsuit to defend your rights. We may also be able to recommend alternatives like mediation or arbitration to settle business disputes.
What Is the Difference Between Non-Solicitation and Non-Compete Agreements?
Both non-solicitation and non-compete agreements are restrictive covenants that apply to an employee’s ability to work in competition with his or her employer. However, non-compete clauses are typically much broader and more limiting than non-solicitation clauses. In general, the difference between the two is:
- Non-compete agreements prevent employees from working in competition with an employer for a certain amount of time. This means that a worker cannot join a rival company or start a new business in the same industry during employment and/or for a certain period of time after employment ends. A non-compete agreement may also apply only to a certain geographical area. For example, you may include a clause in your standard employment agreement prohibiting an employee from starting or working for a rival company in Chicago for two years after an employee leaves.
- Non-solicitation agreements do not bar employees from competing in the same market. Instead, this kind of restrictive covenant only prohibits workers from soliciting your company’s clients. This does not inhibit former workers from seeking employment elsewhere, but it does protect your business to a certain extent. It prevents your employees from using your intellectual property (your client list) to take business away from your company.
A restrictive covenant can protect your company and your profits. However, business owners cannot impose sweeping restrictions on all employees, especially if the main purpose is to discourage workers from seeking other employment. Usually, you must limit the covenant to only restrictions that are strictly necessary to protect your interests.
When Can I Include Non-Solicitation or Non-Compete Clauses in an Employment Agreement?
According to Illinois law, you may only include restrictive covenants in employment agreements in certain circumstances. Additionally, the covenant must meet certain requirements in order to be valid and enforceable. Depending on your situation, these may include:
- Low-income employees are exempt. According to the Illinois Freedom to Work Act, which took effect in January of 2017, employers may not impose restrictive covenants on low-wage employees. That includes employees who make federal or state minimum wage, or up to $13/hr., whichever is greater. Essentially, this means that if your employee makes $13 per hour or less in Illinois, then he or she cannot enter into a non-solicitation or non-compete agreement.
- Reasonable scope. The limitations imposed by a restrictive covenant should not exceed what is strictly necessary to protect the company’s interests. Usually, a business’s interests include things like: confidential information, intellectual property, unique training processes and clients.
- Adequate consideration. Restrictive covenants benefit the employer and limit the employee; therefore, for such an agreement to be enforceable, the worker must receive some benefit or promise in return for accepting these limitations. Usually, this benefit is an offer of employment. However, the question of adequate consideration has been the basis for several complex legal claims. In Illinois, one court recently ruled that adequate consideration requires a period of employment of at least two years. If this decision holds, then any non-solicitation or non-compete agreement may be unenforceable until an employee completes at least two years of work.
- Creates no undue hardship for the employee or the public. The terms of a non-compete or non-solicitation agreement may not completely prevent a former employee from finding a new position. Additionally, in rare cases, it may be in the public’s best interest to void a restrictive covenant.
Questions About Restrictive Covenants? Call a Chicago Business Lawyer Now
Due to the complexity of restrictive covenants, you should always have a Chicago business lawyer review your contracts. An attorney from LAD Law Group, P.C. can advise you on how to protect your business with a non-compete/non-solicitation agreement. Since we offer a full range of legal services, we may also be able to help you defend your rights if a former employee violates a covenant.
To schedule a consultation at our Chicago law office, call (312) 252-3085 or contact us online now.