On December 26, 2011, Illinois Representative Jil Tracy introduced HR0016, the Illinois Covenants Not to Compete Act. Tracy is a Republican representative for a portion of downstate Illinois including Quincy. On January 12, 2011, the bill was referred to the House’s Rules Committee.
The proposed law would establish criteria for enforcing covenants not to compete. Under Section 10 of the proposed law, a non-competition provision is “void,” unless the individually contracting is a “key employee” or a “key independent contractor.” Section 5(d) defines a “key employee” as including someone who has, for example, “(1) … substantial involvement in the executive management of the [company’s] business, [or] (2) has direct and substantial contact with customers…,[or] (3) has knowledge of bona fide trade secrets or other proprietary information.” However, this language is too restrictive. For example, a plant manager or a site superintendent for a construction company without “substantial involvement” may seriously compete with a company and not be covered by this language. Or, an inside sales or customer service representative may have only “indirect” and not “substantial contact” with customers, yet could work for a competing, small company without enforceable restrictions.
Sections 10(b) and 15(a) are also troubling. Under Section 10(b), a restrictive covenant is enforceable, if the company tells a prospective employee about the restriction “at least two weeks prior to the first day of employment.” This timing ignores the operations of many smaller businesses who more quickly make decisions and who want prospective employees to begin their new employment very quickly. Under Section 15(a), the proposed statute states that any agreement will be presumed not to be enforceable, if the provision restricts competition for more than one year. Although the presumption is rebuttable in court, this provision is also too restrictive and contrary to decades of judicial decisions finding enforceable restrictions of more than 1 year in duration.
We do not know the fate of the bill, but urge all businesses to learn more about the bill and to contact their state senators and representatives. This bill follows the introduction of other bills in previous sessions of the Illinois State Legislature. In addition, other states have similar statutes, setting the parameters for companies and judges. Every situation is different and judges should be allowed to determine the adequacy of consideration and whether an employee was properly bound by a restrictive covenant on a case-by-case basis, after considering evidence introduced by all parties affected by the restriction.