While viability of strict ‘two-year rule’ is in question in Illinois, employers should consider alternatives to make sure non-competes are enforced
Some Illinois appellate courts, beginning withFifield v. Premier Dealers Services, Inc., 2013 IL App. (1st) 120327, have applied a bright line rule requiring two years of continuous at-will employment to support an employee restrictive covenant absent additional consideration. The Illinois Supreme Court has not yet addressed the issue. And a majority (but not all) of the federal courts that have considered the issue have predicted that the Illinois Supreme Court will find there is no bright line rule as to the duration of at-will employment that is sufficient to support the enforcement of a non-compete agreement.
The issue was addressed most recently in Traffic Tech, Inc. v. Kreiter, Case No. 14-CV-7528 (N.D. Ill. Dec. 18, 2015). The court emphatically refused to apply Fifield’s “two-year rule,” holding that “Illinois law does not require a strict application of the two-year rule in assessing the enforceability of a non-solicitation clause (or any similar restrictive covenant).” Instead, the court held that courts should use a fact-based, totality of the circumstances approach in determining the adequacy of consideration supporting restrictive covenants.
But the fact-based assessment that the court found should be applied has uncertainty baked into it. In determining whether the non-solicitation clause at issue was unenforceable as a matter of law, the court considered a number of facts, including that the employee voluntarily resigned, worked for Traffic Tech for only nine months and received a $250,000 signing bonus. It rejected a hard and fast “two-year” rule. The court found, in essence, that each case inherently turns on its own facts. Consequently, the issue of the adequacy of the consideration of agreements that turn on duration of employment will be an open question until the issue is litigated.
For employers requiring new hires to sign non-competes in Illinois (and elsewhere), the uncertainty of Illinois law on this point may be frustrating. To ensure that non-competes can be effective tools to protect a business’ assets and relationships, there are a variety of options for how to structure consideration to reduce uncertainty. What constitutes sufficient “additional consideration” under Illinois law to support a non-compete? In Traffic Tech, the court considered that the employee received a signing bonus in determining the adequacy of consideration for the subject non-solicitation clause. Other courts in Illinois have considered additional benefits, such as health insurance, training, growth opportunities and bonuses as additional consideration to support restrictive covenants.
Until the Illinois Supreme Court decides the issue, employers should consider offering consideration to those employees signing restrictive covenants that is different from or greater than that offered to employees who are not signing restrictive covenants, such as the benefits identified above, to enhance the likelihood that the non-compete agreements on which they rely to protect their assets are enforced.