Tag: Post-Employment Restrictions

Will 2 Years of Continued Employment Be Enough in Illinois to Enforce a Non-Compete?

The Answer: It’s Complicated.

In 2013, an Illinois Appellate Court in Fifield v. Premier Dealer Services, Inc., decided that absent additional consideration, continued employment for less than 2 years after the restrictive covenant was signed, would not be sufficient to enforce a restrictive covenant. The Fifield decision was unusual because courts often do not consider the adequacy of the consideration ̶ only that there was consideration to support a contract. Often, the promise of continued employment was acceptable. This decision sent shock waves throughout Illinois and required employers to reevaluate the value they were giving employees when entering into restrictive covenants.

Since that decision, Illinois state courts have routinely followed Fifield and applied its bright line test in cases where there is no additional consideration given to the employee except continued employment.

For example:

• October 31, 2017 – Employee signed a restrictive covenant after working for his employer for nearly 12 years and also served on the company’s board of directors. He announced his resignation and left 6 months later. He was finally removed from the Board a year after signing the restrictive covenant. Upon leaving he started a new business that directly competed with his employer. The Court found that the restrictive covenant was not enforceable because he did not work for at least two years after signing the restrictive covenant.
• June 25, 2015 – Employee worked for employer for more than three years and left. After working for the new employer for one day, the employee asked to come back. As a condition of his return, the employer requested he sign a restrictive covenant. The employee quit 18-months later. The Court held that because he did not work at least two years after executing the restrictive there was not sufficient consideration to support the restrictive covenants.

Complicating matters, however, Federal Courts in Illinois have consistently rejected Fifield’s bright line test and adhered to a more comprehensive fact specific analysis. The Federal Court’s decisions believe that the Illinois Supreme Court would not adopt Fifield’s rigid and bright line test and continue to a support a “totality of the circumstances” review. As a result, it has led to decisions that are at odds with the State courts:

For example:

• October 20, 2017 – Employees left after 13-months of employment, took confidential information, and started working for a competitor. Employees argued that Fifield governed and therefore the restrictive covenants were not enforceable. The Court disagreed and rejected Fifield’s bright line test.

• July 24, 2017 – Employee left after working for employer for nearly ten years. He signed a restrictive covenant 16 months prior to leaving. The Court rejected Fifield’s bright line rule. The Court noted that “[f]ive federal courts in the Northern District of Illinois and one federal court in the Central District of Illinois have predicted that the Illinois Supreme Court will reject the Illinois appellate court’s bright-line rule in favor of a more fact-specific approach.”

What does this mean for employers?

Because all Illinois employers should expect that they will have to enforce these agreements in a state court, the Fifield holding must continue to be respected. Employers should review their restrictive covenants to ensure the agreements are carefully drafted to improve enforceability.

Levin Ginsburg has been working with employers for approximately 40 years to help them protect their businesses. If you have any employment or other business related issues, please contact us at 312-368-0100 or email Walker Lawrence at wlawrence@lgattorneys.com

Guidelines for Non-Competition Clauses in Employment Contracts

Employment contracts with non-competition clauses are quite common.  But employers must not go too far in restricting the activities of former employees.  If they do, courts will not enforce the post-employment restrictions.

Recently, an Illinois court struck down covenants in an employment agreement that an employer tried to enforce because the restrictions went beyond what was necessary to protect a legitimate business interest of the employer.

In Assured Partners, Inc. v. Schmitt, 2015 Ill. App. (1st) 141863 decided October 26, 2015, the defendant, Schmitt, had been employed by ProAccess, a subsidiary of Assured Partners, Inc.  After he resigned, his former employer sued him, asking for money damages and an injunction.  The employer lost.

The employment agreement Schmitt signed prohibited him from competing with his former employer “anywhere in the United States or its territories” for a period of 28 months even though he had worked for ProAccess for only 20 months.  It also contained a confidentiality clause prohibiting Schmitt from disclosing any information or observations he made about ProAccess’ business while employed.

The court refused to enforce the non-compete clause because it was too broad saying it prevented Schmitt “from working as a broker, in any capacity, within the entire universe of professional liability insurance business anywhere in this country.”

It also refused to enforce the confidentiality clause because it was far too broad saying, “Illinois views post-employment restrictive covenants that insist on absolute secrecy of any and all information as unreasonable and unenforceable because a person is allowed to make a living, and cannot possibly not utilize any information from his past job.”

Notably, the court did not discuss or consider Fifield v. Premier Dealer Services, Inc., 2013 IL App (1st) 120327, which holds that a minimum of two years of continued employment is necessary to establish adequate consideration for a restrictive covenant.  Given that Schmitt worked for ProAccess for only 20 months (less than two years), the court arguably could have dismissed Schmitt’s claim on the basis that there was insufficient consideration to support the post-employment restrictive covenant.

The takeaway for employment contracts is:

  1. post-employment restrictions should (a) be limited to protecting the legitimate business interests of the employer, and (b) not impose an undue hardship on the employee; and
  2. the time period and geographic area in which the restrictions apply must be reasonable.

To discuss employment contracts or a non-compete issue you have, please contact:

Michael Weissman at:

mweissman@lgattorneys.com or (312) 368-0100

or

Mitchell S. Chaban at:

mchaban@lgattorneys.com or (312) 368-0100

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