Illinois legislation codifying the law governing non-competition agreements was re-introduced in the Illinois House of Representatives on January 12, 2011. The bill, designated the “Illinois Covenants Not to Compete Act” (HB 0016) (the “Act”), was originally introduced during the 2010 session under the same name (HB 4923, introduced January 15, 2010). The Act is identical to the legislation proposed in 2010, which was discussed in this blog on April 1, 2010.
If adopted, the Act would codify certain limitations on the enforceability of covenants not to compete in Illinois. Specifically, the Act would reinstitute the “legitimate business interests” requirement, which had been rejected by Sunbelt Rentals, Inc. v. Ehlers, 915 N.E.2d 862 (Ill. App. Ct. 2009). In Sunbelt, the Fourth District appellate court abandoned the “legitimate business interests” test, calling into question whether other Illinois appellate courts would follow suit.
In addition to resolving the issue raised by Sunbelt, the legislation would specifically define certain types of provisions as presumptively outside an employer’s “legitimate business interests.” For example, a covenant would be presumed invalid if the agreement imposed a limitation of more than one year, a geographic scope exceeding the region where the employee provided his or her services during the final year of employment, or a scope of limitation exceeding the type of services and activities performed by the employee during the final year of his or her employment. An employer would be permitted to introduce countervailing evidence to rebut those presumptions upon a showing that the provision was necessary to protect a legitimate business interest.
The Act would also limit the types of employees who could be subject to covenants not to compete. Such agreements would be limited to “key employees” who have: (a) significant involvement in firm management, (b) direct and substantial contact with firm customers, (c) knowledge of trade secrets or important proprietary information, (d) unique skills that have given the employee significant notoriety as a representative of the firm, or (e) a salary in the top 5% of the firm’s employees.
As indicated in our initial analysis last year, the proposed changes to Illinois law contained in the Act would provide some additional clarity to the law governing covenants not to compete by removing the uncertainty introduced by the Sunbelt decision and providing a few minor substantive changes. However, the Act as currently drafted does not constitute a sea change to the existing law. Rather, it is more accurately viewed as a modest statutory adjustment which eliminates certain areas of uncertainty which have arisen over the past few years. In my view, if the Act were adopted, the balance of power between employer and employee in this area would not be materially altered.
The Act is currently before the Judiciary I - Civil Law Committee of the Illinois House, having been assigned by the Rules Committee on February 8, 2011.