Illinois Appellate Ruling

ILLINOIS APPELLATE COURT RULES THAT LESS THAN TWO YEARS CONTINUED EMPLOYMENT IS INSUFFICENT CONSIDERATION TO ENFORCE NON-COMPETITION AND NON-SOLICITATION AGREEMENTS

By: Eli Korer and Kristen O’Neill

Postemployment restrictive covenants, including non-competition and non-solicitation agreements, are carefully scrutinized by Illinois courts because they are viewed as partial restrictions on trade. We have previously discussed the reasonableness requirements for enforcing a restrictive covenant in the employment law context (see LawGram Volume 12, No. 1). Illinois courts have routinely held that “substantial continued employment”—looking at a number of factors, including the length of employment—can be sufficient consideration to support restrictive covenants, including non-competition and non-solicitation provisions, in an employment agreement.  Until recently, however, it was unclear what length of continued employment is considered “substantial continued employment” to support these restrictive covenants.

The Illinois Appellate Court’s recent decision in Fifield v. Premier Dealer Services, Inc., 2013 Il. App (1st) 120327, released on June 24, 2013, has provided an answer: “there must be at least two years or more of continued employment to constitute adequate consideration in support of a restrictive covenant. This rule is maintained even if the employee resigns on his own instead of being terminated.” Therefore, a non-competition or non-solicitation agreement will not be enforced if the employee does not work for the employer for two years or more, absent some other form of consideration. As such, employers run the risk of an employee going to work for a rival, regardless if the employee quits or is fired, before the two year time requirement is reached.

In Fifield, such a situation was realized when an employee resigned from his position at a company, merely three months after beginning his job, to work for a rival company. Fifield had signed an “Employee Confidentiality and Inventions Agreement” which included a two-year, post-employment non-competition and non-solicitation clause. Fifield and his new employer filed a declaratory judgment lawsuit asking the court to hold that the non-competition and non-solicitation provisions in the agreement were unenforceable.  The Illinois Appellate Court ruled in favor of Fifield and held that less than two years of continued employment is insufficient consideration to support enforcing the non-competition provision in Fifield’s agreement.

The decision in Fifield is limited to the length of employment necessary to constitute sufficient consideration, but fails to address the validity of restrictive covenants supported by other consideration. Such uncertainty may give employers little comfort, especially in an ever-increasingly competitive business environment. Employers, however, can protect their businesses by giving employees specific and articulated compensation to secure non-competition and non-solicitation agreements. Such specific compensation may be in the form of a signing bonus, salary increase, or other cash payments at the time the non-competition or non-solicitation agreement is signed, and such payment should be specifically designated as consideration to secure these post-employment restrictive covenants.

            In light of the Fifield decision, companies should review their employment agreements to confirm that post-employment restrictive covenants will be enforceable. If you have any questions regarding post-employment restrictive covenants or how this decision may impact your business, please contact LEVIN GINSBURG at (312) 368-0100 or info@lgattorneys.com.

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