Client Alert - Employment Law Update
Illinois Appellate Court Reinterprets Requirement for Enforceable Restrictive Covenants
An Illinois Appellate Court recently issued an opinion, affecting a key requirement to enforce non-compete and non-solicitation agreements. The decision affects all employers in Chicago and Cook County seeking to protect their business assets through these important tools.
The case of Fifield v. Premier Dealer Servs., 2013 IL (1st) 120327 (June 24, 2013) began when an insurance business employing Eric Fifield was sold to Premier Dealers Services, Inc. (Premier). After first informing Mr. Fifield that his employment would be terminated, Premier later offered to hire him, but requested that he sign a non-compete agreement. After negotiations, Mr. Fifield signed the agreement and began working for Premier. Three months later, he resigned and began working for a competitor.
Substantial Continued Employment as Consideration
Courts in Illinois have long held that non-compete agreements must be accompanied by consideration, or some benefit to the employee, in order to be enforceable. Continued employment for a substantial period of time was one way of satisfying this requirement. However, this was generally understood to only be necessary where an employee signed a non-compete after the employment relationship began. Courts had never previously required substantial continued employment to support a non-compete that was signed at the time of hiring. That is no longer the case.
The Appellate Court's Decision
The Appellate Court ruled that where employment is the only basis for consideration, it must last for a period of at least two years; otherwise, the non-compete is not enforceable. Because Mr. Fifield had not been employed by Premier for at least two years at the time he resigned, the non-compete could not be enforced. The Court also stated that the new rule applies regardless of whether the employee resigns or is terminated. While the decision is only binding on courts in Chicago and Cook County, it could certainly influence the decisions of other courts across the state.
What to Do
In light of this decision, simply relying on new or continued employment to support non-compete or non-solicitation agreements will not be sufficient. Absent more, employees are free to disregard their agreements within two years of being hired. As such, it is imperative that employers consider what they will furnish to new or current employees that enter into these agreements such as monetary compensation, employment for a fixed term, promotions, or other tangible benefits.
If you would like more information about this decision, or have questions about your employment policies and practices in general, please contact Mr. Gonzalez at 312-558-9779 or at egonzalez@elvisgonzalezltd.com.
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