HB4040 96TH GENERAL ASSEMBLY

LRB096 09150 RLC 19299 b

96TH GENERAL ASSEMBLY
State of Illinois
2009 and 2010
HB4040

Introduced 2/27/2009, by Rep. Rosemary Mulligan

SYNOPSIS AS INTRODUCED:

New Act

Creates the Illinois Covenants Not to Compete Act. Establishes criteria for enforceability of covenants not to compete. Creates certain rebuttable presumptions as to the enforceability of covenants not to compete. Establishes remedies and procedures for enforcing covenants not to compete. Effective January 1, 2010.

A BILL FOR

AN ACT concerning business.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 1. Short title. This Act may be cited as the Illinois Covenants Not to Compete Act.

Section 5. Definitions. As used in this Act, the following definitions apply:

(a) "Promisor" means a party against whom a covenant not to compete is sought to be enforced.

(b) "Promisee" means a party seeking to enforce a covenant not to compete.

(c) "Covenant not to compete" means a restriction which prevents a promisor from working for or providing personal services to a person or entity in competition with the promisee.

(d) "Key employee" or "key independent contractor" means any employee or independent contractor who has (i) substantial involvement in the executive management of the promisee's business, (ii) direct and substantial contact with customers of the promisee, (iii) knowledge of bona fide trade secrets or other proprietary information of the promisee, (iv) such unique skills that the person has achieved a high degree of public or industry notoriety, fame, or reputation as a representative of the promisee, or (v) is among the highest paid 5% of the promisee's employees or independent contractors in the year preceding a separation from service by the key employee or key independent contractor.

(e) "Legitimate business interest" means (i) customer relationships developed and maintained by the promisee, (ii) trade secrets or other proprietary information of the promisee to which a promisor was granted meaningful or regular access, or (iii) business goodwill of the promisee.

(f) "Trade secrets" means any trade secrets as defined in the Illinois Trade Secrets Act and the common law under such Act.

Section 10. Criteria for enforceability of covenants not to compete. A covenant not to compete is void as an illegal restraint of trade and may not be enforced by a court in this State, unless:

(a) the promisee is a key employee or key independent contractor;

(b) the promisor either (i) informs the key employee or key independent contractor in a written offer at least 2 weeks prior to the first day of the employment or contractor relationship that a covenant not to compete is required as a condition of employment or services, or (ii) enters into the covenant not to compete with the promisee upon (A) a material advancement or promotion of the key employee or key independent contractor, or (B) payment of a material bonus or material increase in rate of regular compensation; and

(c) the covenant not to compete is narrowly tailored to support the protection of a legitimate business interest of the promisee against actual or threatened infringement by the promisor.

Section 15. Rebuttable presumptions.

(a) A covenant not to compete will be presumed not to meet the criteria under subsection (c) of Section 10 if (i) the duration of the covenant not to compete exceeds one year, (ii) the geographic area of the covenant not compete extends beyond any region in which the key employee or key independent contractor provided employment or contractor services for the promisee during the one year preceding termination of the employment or independent contractor relationship, or (iii) the type of personal services activity subject to the covenant not to compete extends beyond the nature of work the key employee or key independent contractor provided to the promisee during the one year preceding termination of the employment or independent contractor relationship.

(b) A promisee may introduce evidence to rebut the presumptions in subsection (a) of this Section upon a showing that more extensive restrictions are necessary to protect a legitimate business interest.

Section 20. Remedies and procedures in actions to enforce covenants not to compete.

(a) Modification. For any action brought to enforce a covenant not to compete in which the covenant is found not to meet the criteria in subsection (c) of Section 10, the court retains discretion to modify the covenant not to compete to the extent necessary to make the restraint reasonable under the circumstances. If the court so modifies the covenant, the court may not award the promisee any damages for a breach of the covenant not to compete occurring before an order of modification.

(b) Attorney's Fees and Costs of Litigation. For any action brought to enforce a covenant not to compete in which the subject agreement contains a provision granting the promisee a right to recover attorney's fees or other costs of litigation from the promisor, such provision shall be construed to provide the promisor with a mutual entitlement to attorney's fees or other costs of litigation should it be the prevailing party against the promisee.

(c) Declaratory Judgment. Any promisor has the right to file an action under Section 2-701 of the Code of Civil Procedure for a declaration of his or her rights under a covenant not to compete, and in the event the promisor is the prevailing party in such a proceeding, the court may award him or her reasonable attorneys' fees and court costs.

Section 25. Exceptions. This Act does not apply to and shall not modify the common law with respect to:

(a) any agreement relating to the solicitation, hiring, or contact with employees, vendors, or customers;

(b) any confidentiality agreement;

(c) any agreement between (i) a corporation, partnership, limited liability partnership, limited liability company, and (ii) its shareholders, partners, or members; and

(d) an agreement between an employer and employee under which an employee receives incentive compensation of any kind, and where the employer is entitled to forfeiture of such compensation for competition.

Section 99. Effective date. This Act takes effect January 1, 2010.