At the tail end of 2013 and in 2014, two Illinois Appellate Courts ruled that two years of continued at-will employment is required for there to be sufficient consideration to support a restrictive covenant. This rule applies regardless of whether the employee leaves voluntarily or involuntarily.
The bright line two-year rule was first announced in Fifield v. Premier Dealer Services, Inc., 2013 IL App (1st) 120327, ¶¶ 9, 14, 19. The two-year rule was later adopted in Prairie Rheumatology Associates, S.C. v. Francis, 2014 IL App (3d) 140338, ¶¶ 14-16. Although Fifield was the first case to declare a bright line rule, other Illinois decisions had invalidated covenants where the at-will employment was less than two years. See Brown & Brown, Inc. v. Mudron, 379 Ill.App.3d 724 (3d Dist. 2008) (eleven months of continued employment insufficient); Mid-Town Petroleum, Inc. v. Gowen, 243 Ill.App.3d 63 (1st Dist. 1993) (seven months insufficient); Lawrence & Allen, Inc. v. Cambridge Human Resource Grp., Inc., 292 Ill.App.3d 131 (1st Dist. 1997) (two years sufficient).
The Illinois Supreme Court had the opportunity to review the decision in Fifield, but declined to do so. 996 N.E.2d 12 (Sept. 2013). The two year rule will therefore likely be enforced in Illinois trial courts, and certainly in any trial courts within the First or Third appellate districts. Some federal district courts have disagreed with the bright line two year rule, and others have applied it. Compare Montel Aetnastak, Inc. v. Miessen, 989 F.Supp.2d 694, 716-717 (N.D. Ill. 2014) (holding that fifteen months employment was sufficient) and Bankers Life & Casualty Co. v. Miller, No. 14 CV 3156, 2015 WL 515965, at *3-4 (N.D. Ill. Feb. 2, 2015) (finding two years of employment not required) with Instant Tech., LLC v. DeFazio, No. 12 C 491, 2014 WL 1759184, at *14 (N.D. Ill. May 2, 2014) (applying Fifield's bright-line two year rule and invalidating restrictive covenants because employment lasted less than two years). Thus, there is no uniform rule that applies throughout all the courts.
This uncertainty leaves employers with a choice. An employer can take affirmative action to avoid issues of consideration with restrictive covenants, hope that the at-will employee stays for two years, or hope for a judge who disagrees with Fifield and Prairie Rheumatology.
What should employers do in 2015?
Employers should consider providing separate consideration to support any restrictive covenant. Separate consideration is required for a restrictive covenant because unlike most contracts, where courts rarely inquire into the adequacy of the consideration, courts immediately scrutinize the adequacy of consideration for any restrictive covenant. Curtis 1000, Inc. v. Suess, 24 F.3d 941, 945-46 (7th Cir. 1994). Consideration is broadly defined as any act which benefits one party or disadvantages another. Cincinnati Ins. Co. v. Am. Hardware Mfg. Ass'n, 387 Ill.App.3d 85, 100-01 (1st Dist. 2008).
At-will employment is clearly the weakest type of consideration. The employee in Fifield, like the employees in Brown & Brown, Mid-Town Petroleum, Lawrence & Allen, and Prairie Rheumatology, was an at-will employee who could be fired at any time. 2013 IL App (1st) 120327, ¶ 14. Courts have subjected this type of arrangement to heavy scrutiny. See Diederich Ins. Agency, LLC v. Smith, 2011 IL App (5th) 100048, ¶ 13 ("When a defendant is an employee at will, such as he was in the instant case, his continued employment is an illusory benefit because the minute after he signed the consolidation agreement . . . ."). Thus, where the consideration for the restrictive covenant is at-will employment, the employment must continue "for a substantial period of time beyond the threat of discharge." Id. That "substantial period of time" is two years of continued employment.
If the restrictive covenant is important, then providing separate consideration, other than continued employment, is advisable. Substantial monetary payments arguably constitute sufficient consideration. See Medtronic, Inc. v. Benda, 689 F.2d 645, 654 (7th Cir. 1982) (finding that an increase in compensation was consideration for employment agreement). Similarly, protected employment for a defined period of time could also be sufficient consideration (such an employment contract for a defined period of time, and where the contract provides that the employee can be terminated only for cause). While money or a contract are more easily quantifiable, other types of benefits could also be used to try to support the restrictive covenant. Regardless of what is provided as consideration, there should be some defensible methodology supporting the value of what was provided. In 2015 and going forward, providing value for the restrictive covenant is key to enforceability.