Are Covenants Not to Compete Enforceable Against At-Will Employees in Illinois?

• NCJ Number: 173025
• Journal: Illinois Bar Journal Volume: 85 Issue: 8 Dated: August 1997 Pages: 370-373
• Author(s): T, Jr Canafax
• Date Published: 1997
• Length: 4 pages
• Publication Format: Article
• Language: English
• Country: United States of America

Annotation

Two Illinois appellate court districts have split over whether covenants not to compete are enforceable based on an at- will employment relationship rather than a formal employment contract; this article discusses this issue and recommends that courts not require a formal contract.

Abstract

The covenant not to compete or solicit customers, sometimes called a restrictive covenant, has been disfavored by some courts. Most recently, the first appellate district has called into question the enforceability of such a covenant against an at-will employee, particularly when there is no formal employment contract. In Creative Entertainment, Inc. v. Lorenz, the court struck down a no-solicitation covenant in which where was no formal employment contract to which it could be ancillary. Further, the decision seemed to deprecate the unstable nature of an at-will employment arrangement. This decision raised the issues of whether the covenant was defective because of the at- will employment, because there was no formal contract of employment, or for both reasons. The uncertainty about the meaning of this court decision was exacerbated when another appellate court refused to follow "Creative Entertainment." In Able v. Fox, the fourth district rejected the premise that either a formal employment agreement or a fixed duration of employment is a prerequisite to a restrictive covenant. Although there is merit to the views of both court decisions, society will gain little if courts decide the issue based on whether a formal employment contract exists. Most courts regard the employment relationship as based upon contract and have used the venerable "unilateral contract," which they infer from the relationship. Moreover, the Able v. Fox court makes a good case that the real policy justification for a restrictive covenant, at least in employment cases, is the employment relationship and not some legal pedigree that a formal contract might confer. 24 notes