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What makes a noncompete agreement enforceable?

On Behalf of | Feb 3, 2020 | Employment Contracts

A business’ value lies in keeping a competitive edge. Whether you have trade secrets, valuable clients, or both, you don’t want a former employee to let your competitors know why you’re successful. To protect your company, you may have your employees sign noncompete agreements.  They may also be a valuable asset when you buy a business since a successor corporation in asset purchase can enforce confidentiality agreements and covenants not to compete that employee signed with its predecessor corporation.

However, noncompete agreements must hold up to strict standards to be enforceable.  A non-compete agreement requires consideration of the restriction in terms of duration, function, and geographic scope.  If you want to make sure you can sue if a former employee breaks the agreement, you will need to make sure that it stays within reason while protecting your company.

Reasonable duration

If a noncompete keeps your former employee out of your industry for several years or permanently, a judge is unlikely not uphold the agreement. Illinois does not have an exact limit on how long the noncompete can last. But most courts will try to determine a reasonable length of time for an agreement to protect your company. If they find the contract unreasonable, they may overturn it.

Listing specific activities that the employee cannot do

If you don’t explicitly define the work your former employee cannot do, you may risk invalidating the noncompete. If you try to enforce an entire type of industry, regardless of the tasks performed, a court may think you have limited the worker too much.  A court will uphold a noncompete that restricts a former employee’s performance of functions for his new employer, only to the extent that the proscribed services are the same functions performed for the former employer.

Limiting the area of the agreement

Courts have stated that noncompete agreements must be reasonably limited in geographic scope.  If you only do business in Illinois, a court may not let you enforce a noncompete in another state. However, if your clients or competitors are all over the country, you would need to prove that a broad geographical scope is necessary.

Giving the employee something in exchange

When you limit an employee’s job prospects, you must provide something in return. Sometimes this is as simple as offering a job with reasonable compensation. But if you have an already employed worker sign a noncompete agreement, you may need to give them a bonus or extra pay.

Reasonable agreements may hold up better in court

Noncompete agreements can protect your business from competitors. And having them in place may prevent former employees from trying to take your secrets to a competing company.

But if you don’t make your noncompete reasonable, you may not be able to enforce it. You will want to find a balance between protecting your company while not limiting your former employees.