Restrictive Covenants

Restrictive covenants are provisions frequently found in employment agreements that are meant to protect an employer’s competitive advantage or legitimate business interest. Employers include restrictive covenants in employment agreements to protect their investment in training their employees and to prevent former employees from taking clients and trade secrets to a competitor. A Chicago compete agreement lawsuit attorney at our firm can help you understand the role of these instruments.

Although restrictive covenants have been in existence for more than 100 years, they have become increasingly widespread in recent years. Employers utilizing restrictive covenants include retail companies, data companies, and even colleges. Courts are continually changing how they examine restrictive covenants and in what circumstances restrictive covenants are enforceable. Whether you are an employer who wants to protect your company’s trade secrets and clientele or an employee who is subject to one or more restrictive covenants, it is crucial to have an attorney with experience in this area of law. Our business attorneys have decades of experience both drafting restrictive covenants and litigating the issues of validity and enforceability of such agreements.

Two of the most common types of restrictive covenants are non-compete agreements and confidentiality or non-solicitation agreements.

A “non-compete agreement” (also known as a "non-competition agreement" or a “covenant not to compete”) is a contract which limits an employee’s ability to own or work for a competitor for a specified period of time. The law recognizes that an employer has a right to protect its investments and legitimate business interests but also that employees have a right to work when and where they choose. Non-compete agreements are different from regular contracts because they have the effect of inhibiting commerce and limiting an individual’s ability to earn a living in the same industry in which he has been working. Public policy disfavors contracts inhibiting commerce or limiting individual’s ability to be productive members of society.

Because of the unique nature of non-compete agreements, most states are reluctant to enforce an outright ban on working for a competitor. Accordingly, judges will generally consider the following factors when determining if a non-compete agreement is enforceable:

• The Employer’s Legitimate Business Interest;
• The Geographic Limitation of the Restraint;
• The Duration of the Restraint; and
• The Industry Covered by the Restraint.

A “non-solicitation agreement” or a "non-solicitation clause" typically has the goal of protecting the company’s clients or other employees. When an employee leaves, employers consider it important to the health of the company not to have their former employee taking clients or other employees to a competitor.

Courts are more sympathetic to these types of restrictive covenants because they do not necessarily restrict an employee’s ability to work. That being said, non-solicitation agreements must still be reasonable to be considered enforceable. Our compete agreement lawsuit lawyers can advise Chicago clients on whether an agreement is likely to be deemed reasonable. As with non-compete agreements, courts apply the “totality of circumstances” test to determine if a confidentiality/non-solicitation agreement is reasonable and enforceable.

There are also other factors separate from the language contained in a restrictive covenant—such as whether the employee was terminated that can affect its enforceability. The point is that the enforceability of restrictive covenants is complex and even a well-drafted restrictive covenant is not enforceable in every situation. For employees, this is a good thing because often they sign employment agreements without reading through the entire contract and may later be accused of violating restrictive covenants they didn’t even know they’d entered. For employers, this is a warning to draft restrictive covenants carefully to improve their chances of enforceability and to consult a knowledgeable attorney before taking any action such as terminating an employee subject to restrictive covenants.

Often, the employers themselves aren't fully aware of what’s in their restrictive covenants. This can happen when a restrictive covenant is drafted broadly and one-sidely in an attempt to cover all an employer’s bases. While broad, general language may be appealing, many courts require specificity for a restrictive covenant to be enforceable.

In certain cases, employees and employers can negotiate the terms or modification of their restrictive covenants. The key is to find common ground which allows both parties to get what they want.

When drafting, negotiating, or enforcing a restrictive covenant, it is vital to have a skilled and knowledgeable attorney with experience dealing with restrictive covenants. The Chicago compete agreement lawsuit lawyers at Lubin Austermuehle, P.C. have decades of experience negotiating restrictive covenants and litigating disputes over restrictive covenants. For employees, they can assist you in negotiating a prospective restrictive covenant, ensure your decisions are informed by explaining the potential risks and liabilities of entering a restrictive covenant, inform you of the risks, or advise you as to the plausibility of your former employer’s claim. For employers, they can draft restrictive covenants or analyze existing restrictive covenants using the factors employed by courts. To get compete agreement lawsuit attorneys in the Chicago area who have all the latest information on restrictive covenants, contact us online today or call us at 630-333-0333.