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Be careful with overly broad non-compete clauses

Every business owner wants to protect their company’s health. One commonly used tool for doing this is a non-compete.

A non-compete agreement (sometimes called a covenant not to compete) can prevent a former employee from heading to a direct competitor, bringing with them the specialized industry knowledge or customer list from their former workplace. In Illinois, employers need to very carefully craft a non-compete clause – or potentially watch it fall apart in court.

General non-compete agreement principles

There are some general principles a non-compete agreement must adhere to in order to be enforceable. It must be reasonably necessary to protect a legitimate business interest, for example. It can not impose undue hardship on the employee however, nor can it cause harm to the general public. The agreement also must only go as far as necessary to protect the legitimate business interest.

A court can look at aspects such as geographic restrictions, the length of the agreement and the barred activities when determining whether a non-compete is enforceable. If any of these aspects overreach, it may render a non-compete entirely unenforceable, or lead to a dramatic modification of the terms.

Specificity is key to an enforceable non-compete

Whether an agreement is reasonable depends entirely on the unique factors of each situation. An article for HR Source discusses two cases in which Illinois courts found non-competes to be too broad.

One ruling completely invalidated a non-compete because it prevented a former employer from taking any position – even one completely unrelated to their previous responsibilities – with a competitor. A ruling in a different case found, in part, that a non-compete couldn’t prevent a former employee from reaching out to customers that had ended their relationship with the previous employer many years earlier.

Courts will examine non-compete agreements in great detail, and the burden of proof falls on the employer to demonstrate the agreement is both reasonable and necessary to protect a legitimate business interest. One overstep can sink all or part of the clause. Because of this, it’s important to have a customized non-compete for every employee you think needs one, rather than relying on a (likely flawed) catch-all document with overly broad language for all workers.

This will allow you to better defend your interests and protect your business if the need to do so arises.

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