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Non Competition Agreements Must Be Narrowly Tailored to be Enforceable

Non Competition Agreements Must Be Narrowly Tailored to be Enforceable

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Published by Arnstein & Lehr LLP
Arnstein & Lehr Partner Thadford Felton discusses Non Competition Agreements.
Arnstein & Lehr Partner Thadford Felton discusses Non Competition Agreements.

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Categories:Types, Business/Law
Published by: Arnstein & Lehr LLP on Jan 17, 2009
Copyright:Attribution Non-commercial

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06/16/2009

 
www.arnstein.com1
Non-Competition AgreementsMust Be Narrowly Tailored tobe Enforceable
 Thadord A. Felton
ARNSTEIN & LEHR LLP120 SOUTH RIVERSIDE PLAZA | SUITE 1200CHICAGO, ILLINOIS 60606P 312.876.6934 | F 312.876.0288taelton@arnstein.com
W
hile placing the greatest restrictions on your employee(s) through a non-competition covenant oragreement would seem to be the most logical way to protect your business, over-reaching in theserestrictions can have the opposite eect. The goal o a non-competition covenant or agreement is two-old: (1) to prevent your employees rom competing against you; and (2) to be enorceable. Ensure theenorceability o your non-competition covenants and agreements by making sure that they are tailored tothe realities o your business and the position and activities o the employee that you are seeking to restrict.It is also advisable to periodically reassess these covenants as your business changes and the responsibilitieso your employees change to ensure that your business is protected, and continues to be protected, to themaximum extent possible.A recent Illinois Appellate Court decision re-afrmed the need or narrowly tailored non-competitionagreements. Cambridge Engineering, Inc. v. Mercury Partners 90 BI, Inc., No. 1-06-0798 (1st Dist. December7, 2007). In that case, a manuacturing company employed a sales representative whose territory wasnorthern Illinois and Indiana. The sales representative had an employment agreement that contained a non-competition covenant that prevented him rom engaging in any activity or or on behal o his employer’scompetitors, or engaging in any business that competes with his employer, anywhere in the UnitedState or Canada or a period o twenty-our (24) months ollowing the termination o his employment. The employment agreement also had a provision that permitted a court to modiy any portion o theemployment agreement that it ound to be unenorceable in order to make it enorceable.When the sale representative let and went to work or another company, his ormer employer sought toenorce the non-competition covenant o his employment agreement against his new employer, as his newemployer was aware o the non-competition covenant when it hired the sales representative. In determiningthe enorceability o the non-competition covenant, the court looked at two things:Whether the terms o the non-competition covenant were reasonable and necessary to protect the1.legitimate business interests o the ormer employer; andWhether the non-competition covenant was broader than necessary to exclude the sales representative2.rom doing business in the territorial zone in which relationships with the ormer employer’s customerscould have been established in ways that could be detrimental in the hands o a competitor. As the territory o the ormer sales representatives was northern Illinois and Indiana and the ormeremployer did not do business in all o the provinces o Canada, the court ound that excluding all o Canada

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