Illinois Legislation Limits Non-Competes, Restrictive Covenants

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The Illinois General Assembly recently passed Senate Bill 672 (“SB 672” or the “Bill”), which codifies Illinois common law standards for enforceability for covenants not to compete or solicit and imposes several additional statutory limitations on employers’ ability to enter into and enforce post-employment restrictive covenants. The Bill, which is expected to be signed into law by the end of the year, follows a nationwide trend among Democratic state legislatures enacting laws designed to limit the use or utility of various restrictive covenants in the employment setting.

Under SB 672, a covenant not to compete or solicit is void and unenforceable, subject to judicial reformation, unless: (1) the employee receives adequate consideration; (2) the covenant is ancillary to a valid employment relationship; (3) the covenant is no greater than is required for the protection of a legitimate business interest of the employer; (4) the covenant does not impose undue hardship on the employee; and (5) the covenant is not injurious to the public. The Bill codifies the holding of Fifield v. Premier Dealer Services, 2013 IL App (1st) 120327, by defining “adequate consideration” as (a) two years of continuous employment after signing the agreement; or (b) alternative consideration, such as “a period of employment plus additional professional or financial benefits or merely professional or financial benefits adequate by themselves.” This is noteworthy as some courts applying Illinois law have declined to apply Fifield’s holding taking the position that it does not correctly state Illinois law. Following SB 672’s enactment, it is likely that Fifield will be followed by courts across the board, even when interpreting restrictive covenants entered into before the Bill’s effective date.

Likewise, the Bill incorporates the holding of Reliable Fire Equipment Co. v. Arredondo, 965 N.E.2d 393 (Ill. 2011), by adopting its “totality of the facts and circumstances” standard for determining an employer’s legitimate business interest. The Bill further provides a non-exclusive list of factors to be considered by courts when determining the employer’s…

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