Chicago Employment Law: The Scoop on Non-Competes, Solicitations and Disparagements
Non-Compete. Non-Solicitation. Non-Disparagement. Generally known as “Restrictive Covenants” in employment law.
People sign these everyday, don’t read them, and then at some point leave their employer shocked to find out they are restricted in one way or another from future employment by some piece of paper they barely remember signing. Typical.
What are these? Here’s the quick and dirty:
-Non-Compete: Employee agrees that for some length of time after he/she stops working for the employer, he/she will not conduct business or work in a similar business within some stated georgraphic area.
-Non-Solicit: Employee agrees that for some length of time after he/she stops working for the employer, he/she will not try to get other employees to also leave the employer AND employee will not try to sell goods or services to the customers of the employer.
-Non-Disparagement: Employee agrees that he/she will not say bad, untruthful or hurtful things about the employer after he/she leaves the employer.
These agreements are common for: highly skilled employees and sales staff.
Some common examples:
Dr. Smith hires Dr. Jones for his medical practice. Dr. Jones signs a Non-Compete as a condition of his employment. Dr. Jones leaves Dr. Smith’s practice two years later to start his own practice. The Non-Compete stops Dr. Jones from working as a doctor within a five mile radius of Dr. Smith’s practice for a period of two years. This makes sense. Dr. Smith employed Dr. Jones, supplied him with a base from which to practice, trained him, etc. It wouldn’t be fair for Dr. Jones to up and leave with half of Dr. Smith’s patients by setting up shop next door.
Here’s another one. Jermaine gets a job with Jackson Corp. as a glove salesman. Jermaine signs a Non-Solicitation as a condition of employment. Throughout his employment with Jackson Corp., Jermaine sells gloves all around the country. Jermaine gets leads from Jackson Corp.’s sales office and Jackson Corp. specially trains Jermaine to sell gloves. Jackson Corp. lets Jermaine see special pricing and product information sheets that Jackson Corp.’s glove suppliers only allow certain vendors view. Jermaine quits to go work for GaGa Corp., which also sells gloves. Jermaine is now prohibited, by virtue of the Non-Solicit, from trying to get his Jackson Corp. clients to switch over to GaGa Corp. for their glove needs. This also makes sense. Jackson Corp. trained Jermaine, gave him sales leads in order to find customers, and showed him sensitive information like prices and product specs to which only Jackson Corp. had access.
There are a two main hallmarks that employers must follow for these types of agreements to be held valid:
1. A restrictive covenant must protect only the employer’s legitimate business interest.
2. A restrictive covenant must be narrowly tailored to effectuate its purpose.
So what does this mean? Well, in the case of (1), it means that an employer must figure out what it is that it is protecting, and why. For example, it’s perfectly legit for an employer to protect its customer list if it spends time and money to develop that list and only allows certain employees to look at it. It’s not legit for an employer to protect its customer list if the employer publicizes on its website: “Check out our customer list!”
Narrowly tailored means just that. An employer that can get a non-compete from its employees can’t make the term of the non-compete 100 years or the geographic scope the World. The courts won’t enforce this.
Remember, our system is (theoretically) based on competition…so the courts will only go so far in enforcing restrictive covenants. It’s like that famous movie line: Take only what you need to survive.
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