Header graphic for print
Trading Secrets A Law Blog on Trade Secrets, Non-Competes, and Computer Fraud

Illinois Legislator Proposes Unique Employment Noncompete Agreement Act

Posted in Legislation, Non-Compete Enforceability, Restrictive Covenants

Rep. Thomas Morrison, a Republican member of the Democratic-controlled Illinois General Assembly, has introduced HB 2782 (98th G.A.) – the “Employment Noncompete Agreement Act.” The bill would create a new Illinois statute, not simply an amendment to an existing one, that differs markedly from every current state non-compete statute. Rep. Morrison introduced the identical bill in the previous session of the General Assembly (HB 5570, 97th G.A.), but it never passed out of committee.

Controversial provisions

Apart from the question of whether the Illinois General Assembly would agree that legislation of any sort on the subject is needed, the specific provisions of HB 2782 that are likely to generate the most controversy are those:

  • asserting that employers have a legitimate commercial interest in being protected against competition and solicitation by former employees,
  • providing a formula that ties the maximum duration of permissible post-employment covenants to the annualized compensation of the ex-employee on the date of termination, and
  • mandating, if litigation between the former employer and the ex-employee proceeds all the way to verdict, a shift to the losing party (plaintiff or defendant) of the burden of paying the prevailing party’s damages, attorneys’ fees, and expenses.

Analysis and Insight

The bill begins by proclaiming that “all employers have vested, protectable interests in their customers, clients, and identified prospects which are legitimately protectable through the use of noncompete agreements.” In Illinois, the principle that reasonable restrictions applicable to employees’ post-employment are enforceable is well-established by case law. So, it is not apparent why Rep. Morrison believes that Illinois needs to have non-compete and non-solicitation covenants expressly authorized by statute in Illinois (to be sure, a few states other than Illinois have laws providing that such covenants are unenforceable altogether or are disfavored).

In one section, Rep. Morrison’s bill states that the maximum “duration of a post-employment restriction period must have a reasonable relationship to an employee’s position and salary at the time of termination.” However, there is no mention of an employee’s “position” in the section setting allowable time limits for enforceable restrictions. Rather, presumably based on an assumption that the larger an employee’s annualized compensation, the longer the period during which the former employer needs protection, the proposed statute ties the permissible length solely to the ex-employee’s final earnings. Thus, a restriction may not exceed:

  1. six (6) months for an employee earning less than $50,000,
  2. nine (9) months for those making $50,000-$99,999,
  3. twelve (12) months if compensation is $100,000-$149,999, and
  4. eighteen (18) months for an employee being paid $150,000 or more.

These limitations apparently would not be applicable to independent contractors, since they are not employees, but would apply to employees even in the instance of the purchase of a company or its assets, or the dissolution of a partnership. No state statute contains any comparable provisions.

HB 2782 would require courts to award to the prevailing party – whether that party is the former employer or the ex-employee – in litigation seeking to enforce a non-competition agreement “damages, costs and expenses, and reasonable attorney’s fees.” This, too, would be unique; the only state statute that’s even close mandates an award of fees and costs to an ex-employee who prevails, but the law is silent with respect to a prevailing former employer.

Rep. Morrison’s bill may be unlikely to garner the necessary votes, especially in its present form, to be enacted and signed into law. Should the bill become law, however, the fee shifting provision would give both parties a strong incentive to settle rather than proceed to judgment. Moreover, in any given case, a court may or may not find the statutory formula for determining the permissible length of a post-termination restriction to be reasonable.