Employment Contracts

Employment in Illinois is considered “at-will,” which generally means that either the employer or the employee may terminate the employment relationship at any time, for any reason or no reason at all, as long as is the employer’s action is not prohibited by state or federal law. The state and federal laws prohibiting the termination of an employment relationship include laws prohibiting discrimination based on the employee’s membership in a protected class, or prohibiting retaliation for the employee’s engagement in protected activity. In addition, the employer may not terminate an employee if doing so is in violation of an employment contract.

Under some circumstances, employers and employees (with or without the help of unions) will form a contract governing the employment relationship. The contract may define any term or condition of employment, such as: wages, hours, benefits, job duties, termination requirements, duration of employment, grievance procedures, confidentiality agreements, severance packages, and non-compete agreements. Once a contract is formed, it is legally binding upon both parties and can be enforced in court.

If a party violates the contract, the non-violating party may be entitled to damages. The damages are generally determined by calculating how much charging party lost due to the violating party’s actions. For example, if the parties signed a one-year employment contract, and the employer wrongfully terminated the employee after eight months, the employee may be entitled to four months’ wages and benefits.

Common Restrictions
Employees should also beware of restrictive language in employment contracts. Restrictive language in employment agreements can often be confusing; non-competition clauses, restrictions on the use of confidential information, and non-solicitation clauses may seem quite similar. This article explains those various types of restrictive covenants. In general, the four types of restrictive covenants are:

• Restrictions on use of confidential information
• Anti-raiding of employees
• Non-solicitation of customers
• Non-compete agreements/provisions

For each type of restrictive covenant, an employer may be able to seek action against an employee if the covenant is breached. If an employee has a restriction in his/her employment agreement, the employer may be able to bring an action against the employee for breach of contract if he/she does not adhere to the restriction. Likewise, the employer may have a remedy against the employee under a state statute (such as the Illinois Trade Secrets Act) or a common law claim for breach of fiduciary duty or misappropriation of trade secrets, even if the employee never signed an employment agreement.

Restrictions on Use of Confidential Information
For the employee, this is the least onerous of the four types of restrictive covenants. These restrictions prohibit a former employee from “using” or “misappropriating” confidential information that the employee learned or to which the employee had access while employed.

Anti-raiding of employees
These provisions prohibit former employees from inducing other employees to leave the former employer or to form a competing business. The duration of the restriction may vary, but must be “reasonable” in order to be enforceable.

Non-Solicitation of Customers
Non-solicitation provisions prohibit former employees from inducing customers to stop doing business with the employee’s former employer and/or from going into business with the former employee. Such provisions typically prohibit contact with and solicitation of customers with whom the employee has dealt within the last six months (or a similar period of time) of the employee’s employment. Like anti-raiding provisions, the duration of the restriction may vary, but must be “reasonable” in order to be enforceable.

Non-Compete Agreements/Provisions
Non-compete agreements or provisions are the most onerous of the restrictive covenants for employees, because they may diminish the ability of a former employee to earn a living. These provisions prohibit former employees from engaging in a “competing business” with the former employer. How broadly or narrowly the term “competing business” is defined is essential, but the term generally means that the employee may not work for a competitor for a certain period of time. In order to be enforceable, non-compete provisions must be reasonable in scope, duration, and geographic limitations. The more specialized the former employer’s business, the more extensive a non-compete provision can be under the law.

© 2017 Caffarelli & Associates, Ltd.. All rights reserved. Click here for our disclaimer.