A recent Illinois Appellate Court decision may impact the enforceability of certain non-competition and/or non-solicitation provisions in employment agreements governed by Illinois law. In Fifield v. Premier Dealer Servs., an Illinois Appellate Court held that without additional consideration, mere employment for less than two years would not be deemed sufficient consideration for restrictive covenants in an employment agreement signed by a former employee upon being hired.
The case arose when plaintiff Eric Fifield and his current employer won a declaratory judgment against Premier, Fifield’s former employer. The trial court held that the non-competition and nonsolicitation provisions in Fifield’s employment agreement with Premier, which he signed when he was first hired by Premier, were invalid and unenforceable because they lacked adequate consideration. The court held that Fifield’s mere employment with Premier was insufficient to constitute adequate consideration for the restrictive covenants because he had only worked at Premier for a few months after his former employer was bought by Premier. Premier appealed and the Illinois Appellate Court upheld the trial court’s declaratory judgment in Fifield’s favor.
On appeal, Premier argued that the agreements did not constitute a post-employment restrictive covenant because Fifield signed the agreement before he was employed by Premier and, as he was not a current Premier employee at the time of the lawsuit, the employment itself was sufficient consideration to make the agreements enforceable. The Appellate Court rejected these arguments because the covenants clearly operated to restrict Fifield after his employment with Premier ended, regardless of his status when he actually signed the agreement. Moreover, the court considered Fifield’s less–than–two–years of employment, without more, to be inadequate consideration for the restrictive covenants. Thus, according to the Appellate Court, Fifield’s employment needed to be for at least two years before it could be considered to constitute adequate consideration for the restrictive covenants, regardless whether the employee resigned or was terminated. Because Fifield was only employed by Premier for a few months, the non-compete and non-solicitation provisions were invalid and unenforceable.
Illinois courts have previously found that for current employees who agree to a non-competition provision during the course of employment, mere employment at-will, without more, may not be adequate consideration because continued employment in that status is an illusory benefit, as the employee could be released at any time, with or without reason or notice. Illinois courts have also held that there generally must be at least two years of employment for actual employment itself to be adequate consideration to enforce a post-employment restrictive covenant signed by a current employee. In Fifield, the Appellate Court changed the non-compete landscape somewhat by extending this principal to a scenario involving a newly-hired employee who was required to sign a post-employment restrictive covenant at the time of hiring.
In light of Fifield, Illinois employers may no longer be able to rely on non-competition and non-solicitation provisions that are unsupported by consideration other than actual employment, if it turns out that such employment is of a short (less than two years) duration. Thus, employers with such agreements governed by Illinois law should review their agreements with counsel to determine whether changes to their agreements, or benefits provided, are advisable.