How do I know if my employer can enforce my noncompete agreement?

Many Illinois doctors and healthcare providers do not take the time to review their existing employment contracts before leaving to start a new practice. This can be problematic if these contracts contain restrictive covenants, or “noncompete” provisions. Indeed, many doctors think they can simply ignore a noncompete agreement, set up shop across the street from their former hospital or practice group, and continue to treat their existing patients.

When are Noncompete Agreements Permitted in Illinois?

The reality is that healthcare employers can – and will – enforce noncompetition agreements in the courts. Even if you think a restrictive covenant is unfair or unjust, that does not mean that a judge will not hold you to its terms. That said, not all noncompetition provisions are necessarily enforceable under Illinois law.

Actually, Illinois is less friendly to noncompetition agreements than many other states. Although the Illinois statute on the subject, the Illinois Freedom to Work Act, applies only to low-wage workers, Illinois courts have long held that restrictive covenants related to employment should be disfavored as “restraints of trade” unless certain conditions are met. More precisely, an employer can only enforce a noncompetition agreement if it is “ancillary” to an existing employment contract, supported by “adequate consideration,” and meets the following three tests established by the Illinois Supreme Court:

• The restriction of the employee is “no greater” than necessary to protect a “legitimate business interest” of the employer;
• The restrictions do not “impose undue hardship” on the employee”; and
• The restriction does not somehow injure the general public.

Many healthcare noncompetition agreements will meet these standards. For example, in a 1956 Illinois Supreme Court case, Bauer v. Sawyer, the members of a medical partnership in Kankakee County agreed to a restrictive covenant whereby any doctor who left the group agreed not to practice medicine “within a 25 mile radius” of Kankakee for a period of five years. The Court said these restrictions were “reasonable” under the circumstances and held that the agreement was enforceable.

What Constitutes “Adequate Consideration”?

As noted above, one of the legal requirements for an enforceable noncompetition agreement is “adequate consideration.” What exactly does this mean? As with any contract, there must be some sort of payment or benefit offered in exchange for the employee’s promise not to compete after leaving the business. In some cases, the mere fact that the employee has been employed for a certain period of time, thereby receiving the benefit of “avoiding unemployment,” is deemed to be adequate consideration.

A number of Illinois courts that have looked at this issue have said that an employee must remain with the employer for at least two years before a non-compete may be enforced. It does not matter whether the employee quit or was terminated. For instance, in a 2014 case, Prairie Rheumatology Associates v. Francis, an Illinois appeals court held that a medical practice could not enforce a restrictive covenant against a doctor who resigned after just 15 months on the job. Aside from not meeting the two-year threshold, the court said the doctor received “little or no additional benefit from PRA in exchange for her agreement not to compete.”

Make Sure Your Healthcare Employment Contracts are Enforceable

The takeaway from this is that, if you are an employer looking to create an enforceable noncompete agreement, you must explicitly offer some specific consideration beyond the terms of the regular employment contract. This could include offering a separate signing bonus or additional employment benefits. If you are the employee, you need to carefully review and understand your employment contract to make sure any consideration specific to a restrictive covenant is present.

If you have any questions or concerns about noncompetition agreements and need specific legal advice from an Illinois healthcare lawyer, schedule your free consultation with one of Jackson LLP’s attorneys today.