USA – ILLINOIS Trends and Developments Contributed by: Matthew Prewitt, Michael Molzberger, Trevor Jorgensen and James Cromley, ArentFox Schiff LLP
v Saylor , No 25 C 1750, 2025 WL 2453805, at *3 (N.D. Ill. Apr. 28, 2025). Because there is no guarantee an employee will remain for at least two or more years, most Illinois employers now provide a signing bonus or other easily quantified additional consideration that is specifically designated as consideration for signing the employee restrictive covenant agreement. Employment agreements versus sale-of-business covenants under the IFWA Covenants ancillary to the sale of a business receive different treatment under Illinois law. The IFWA expressly excludes agreements “relating to the pur - chase and sale of the ‘good will’ of a business” from the definition of “covenant not to compete”, leaving such covenants governed by common law without the IWFA’s salary thresholds or procedural protections. Courts afford greater latitude because the seller has received a purchase price for goodwill, but reason - ableness is still required. In Arcor, Inc. v Haas , 363 Ill. App. 3d 396 (1st Dist. 2005), the court refused to enforce a three-year blanket prohibition on competi - tion without geographic limitation in a sale-of-busi - ness covenant, particularly because it restricted the seller from competing “in any capacity” in the relevant industry. In short, sale-of-business covenants must still be reasonable, but the standard generally permits broader scope than employment agreements. Confidentiality covenants under the IFWA and IWTA The IFWA draws a sharp statutory line between non- competition restraints and confidentiality covenants. The definition of “covenant not to compete” expressly excludes confidentiality agreements, invention assign - ment covenants, and agreements prohibiting use or disclosure of trade secrets. 820 ILCS 90/5. That exclu - sion means NDAs are not subject to the IFWA’s earn - ings thresholds. Still, two constraints matter. First, the ITSA confirms that a contractual duty to maintain secrecy or limit use of a trade secret is enforceable and is not void solely because it lacks a geographic or temporal limit. 765 ILCS 1065/8 (b)(1). Second, courts will not enforce confidentiality provisions drafted so broadly that they function as de facto non-competi - tions by preventing an employee from using general skill, knowledge, and experience. See AssuredPart- ners, Inc. v Schmitt , 2015 IL App (1st) 141863, ¶¶ 41–45.
The IWTA separately regulates confidentiality and non- disparagement provisions tied to “unlawful employ - ment practices”. A confidentiality agreement cannot bar an individual from reporting unlawful conduct to government authorities or from making truthful state - ments about alleged unlawful employment practices. 820 ILCS 96/1 20, 1 25 (a). Amendments effective 1 January 2026 have expanded the IWTA’s reach to encompass any employment law violations enforced by agencies including the Illinois Department of Labor, OSHA, or the NLRB. Employers should ensure that confidentiality covenants expressly exclude claims or information protected by the IWTA. Illinois law requires restrictive covenants to be sup - ported by adequate consideration and to constitute only a reasonable restraint on trade. LKQ Corp. v Rut- ledge , 96 F.4th 977, 982 (7th Cir.); Reliable Fire Equip. Co. v Arredondo , 2011 IL 111871, ¶ 16. To be reasonable, restrictive covenants must pass a “three-dimensional rule of reason”: (i) no greater than required for the protection of a legitimate business interest; (ii) no undue hardship on the employee; and (iii) not injurious to the public. Rutledge , 96 F.4th at 982 (quoting Reliable Fire , 2011 IL 111871, ¶ 17). Courts apply this test flexibly, considering the totality of the circumstances including the employee’s customer interaction, the near-permanence of customer rela - tionships, the employee’s acquisition of confidential information, and time and place restrictions. Reliable Fire , 2011 IL 111871, ¶ 43; 802 ILCS 90/7. The cov - enant must also be “ancillary to a valid employment agreement”. 802 ILCS 90/15. Protecting Customer Relationships Through Restrictive Covenants Although protection of trade secrets standing alone may be a sufficient business interest to sustain enforcement of an employee restrictive covenant, many Illinois trade secrets disputes also include claims to enforce restrictive covenants to protect customer goodwill. Where the trade secrets sought to be protected are trade secrets about the customer relationship, the two are often closely intertwined. Enforceability of Reasonable Restrictive Covenants Under Illinois Common Law
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