Evolving Changes in Restrictive Covenant Requirements in Illinois

March 15, 2016

Prior to 2013, employers could argue that the fact of employment for a certain “substantial” period of time constituted adequate consideration to support a non-competition agreement. Since that time, several decisions throughout Illinois have turned that argument on its head. With each new decision, the general understanding of what constitutes consideration has shifted.

In the 2013 case, Fifield v. Premier Dealer Services, Inc., the plaintiff’s employment was terminated as a result of the sale of his employer to Premier Dealership Services (“Premier”). Premier offered Mr. Fifield employment, on the condition that he sign a two-year, post-employment restrictive covenant. The employee signed the agreement, but he then resigned from Premier after only three months. The First District Appellate Court held that the restrictive covenant was unenforceable because “there must be at least two years or more of continued employment to constitute adequate consideration in support of a restrictive covenant.” The court found that any actual employment period shorter than two years – even if the parties agreed for the employment to last two years – is not adequate consideration to support this type of restrictive covenant, absent some other sort of consideration was provided to him or her. The court did not offer any further guidance as to what constitutes adequate consideration for a non-compete where the employee’s employment terminates within two years.

Fifield is the first case in Illinois to offer a specific time frame, or a bright line rule, which would satisfy the “adequate consideration” rule. The practical effect of Fifield’s holding is that employers seeking to enforce a non-compete agreement likely can only do so on the basis of substantial employment if the former employee actually worked for the employer for at least two years. Alternatively, a non-compete agreement is likely only enforceable is there was some other consideration offered to the employee at the outset of his or her employment if the employment ends within two years.

Even with the controversy this ruling stirred, the Illinois Supreme Court declined to review the Fifield case. Recently, however, at least four federal judges have declined to follow the Fifield ruling. Most recently, in December 2015, Judge Robert M. Dow held in Traffic Tech, Inc. v. Kreiter, Case No. 14-CV-7528 (N.D. Ill. Dec. 18, 2015), that the “Illinois Supreme Court is not likely to adopt a two-year, bright line rule in assessing whether an employee was employed for a ‘substantial period of time’ so as to establish adequate consideration to support a post-employment restrictive covenant.” Additionally, Illinois Appellate Courts have largely remained silent on the Fifield ruling. This may provide a basis for the Illinois Supreme Court to visit this issue in the future.

As a result of the ongoing uncertainty of what is required to create an enforceable restrictive covenant, skilled counsel is always recommended in reviewing employment agreements. Rock Fusco & Connelly, LLC’s labor and employment attorneys can help any local business navigate the evolving treatment of non-competes in Illinois.