Restrictive Covenants in the Seventh Circuit

State

Law governing restrictive covenants

Restrictive covenants in employment agreements will be enforced:

Common Law

See Lawrence & Allen v. Cambridge Human Resource Group, 292 Ill. App. 3d 131 (1997).

• A restrictive covenant will be enforced only if the terms of the agreement are reasonable and necessary to protect a legitimate business interest.
• A restrictive covenant’s reasonableness is measured by its hardship to the employee; its effect upon the general public; and the reasonableness of the time, territory, and activity restrictions.
• Before considering whether a restrictive covenant is reasonable, however, the court must make two determinations:
  1. whether the restrictive covenant is ancillary to a valid contract; and
  2. whether the restrictive covenant is supported by adequate consideration.

Common Law

See Grand Union Tea Co. v. Walker, 208 Ind. 245 (1935); Zimmer, Inc. v. Howmedica Osteonics Corp., 2018 U.S. Dist. LEXIS 31294, (N.D. Ind. Feb. 27, 2018); Pathfinder Communications Corp. v. Macy, 795 N.E.2d 1103 (Ind. Ct. App. 2003); MacGill v. Reid, 850 N.E.2d 926 (Ind. Ct. App. 2006).

• In Indiana, to be enforceable, the employer must prove that a restrictive covenant is reasonable with respect to the legitimate interests of the employer, restrictions on the employee, and the public interest.
• The agreement must be reasonable in scope as to the time, activity, and geographic area restricted, such that it restricts an employee only so far as necessary to protect the employer’s legitimate interests.

• Wis. Stat. § 103.465 provides that a covenant not to compete is lawful and enforceable “only if the restrictions imposed are reasonably necessary for the protection of the employer or principal. Any covenant, described in this section, imposing an unreasonable restraint is illegal, void and unenforceable even as to any part of the covenant or performance that would be a reasonable restraint.”
• Pre- and post-termination non-compete agreements are lawful and enforceable only if the restrictions imposed are reasonably necessary for the protection of the employer.
• Wisconsin courts have interpreted Wis. Stat. § 103.465 as requiring that the employer prove the following five prerequisites: a restrictive covenant
  1. is necessary for the protection of the employer, i.e., the employer must have a protectable interest justifying the restriction imposed on the activity of the employee;
  2. provides a reasonable time limit;
  3. provides a reasonable territorial limit;
  4. is not harsh or oppressive as to the employee; and
  5. is not contrary to public policy.