The Illinois Appellate Court for the First District recently held that post-employment restrictive covenants cannot be enforced against at-will employees who were employed for less than two years. In Fifield and Enterprise Financial Group, Inc. v. Premier Dealer Services, Inc., 2013 IL App. (1st) 120327 (1st Dist. June 24, 2013), the employee who worked for companies in the business of marketing and administrating after-market products and programs for the automotive industry signed an Employee Confidentiality and Inventions Agreement that contained various post-employment covenants. The court set a clear numerical standard of two years of continued employment for an employer to show adequate consideration to enforce non-competition or non-solicitation covenants or agreements against at-will employees.
Consideration Based Solely on At-Will Employment Is Inadequate
To be enforceable under Illinois law, restrictive covenants must be supported by adequate consideration. Illinois courts have recognized that a promise of continued at-will employment may be an illusory benefit because at-will employment may be terminated by the employer at any time for any reason or for no reason at all. Thus, where consideration is based solely on continued at-will employment, Illinois courts have long held that the employment must continue for a “substantial period of time” in order for there to be adequate consideration.
Illinois courts have held that two years or more of continued at-will employment generally constitutes sufficient consideration, while a period less than one year of continued at-will employment is likely to be insufficient. However, until now, courts have declined to establish a clear numerical standard.
The Appellate Court’s Decision in Fifield v. Premier Dealer Services
In Fifield, the employee was required to sign non-competition and non-solicitation provisions as a condition of employment when he commenced employment. After working for the employer for just over three months, the employee resigned and started working for a competitor.
The employee and the competitor filed a complaint in the Circuit Court of Cook County, seeking a declaratory judgment finding the restrictive covenants unenforceable. The circuit court agreed with the employee and his new employer, and held that the restrictions were unenforceable as a matter of law for lack of adequate consideration.
The Appellate Court affirmed, finding “there must be at least two years or more of continued employment to constitute adequate consideration in support of a restrictive covenant.” This rule applies even when the employee signs the restrictive covenants at the time of hire, as opposed to signing them after the start of employment. This rule also applies even when the employee resigns on his or her own instead of being terminated. Fifield, the court held, had been employed for just over three months which was “far short of the two years required for adequate consideration under Illinois law.” Lastly, it is worth noting that the court did not mitigate the two-year standard because Fifield had successfully negotiated a proviso where the non-competition and non-solicitation provisions would be nullified if he was terminated without cause during the first year of employment.
Implications for Employers
The Fifield decision will make it much more difficult for employers to enforce non-competition and non-solicitation provisions based solely on continued employment against at-will employees who have not been employed for at least two years. Even if an employer has no plans to terminate an employee, the restrictions are likely to be found unenforceable if, for example, the employee voluntarily resigns after 23 months.
To counter the risk that at-will employees might not remain employed long enough for their agreements to be enforceable, employers may need to consider offering additional consideration to support the enforcement of restrictive covenants, such as signing bonuses or stock options at the time of hire and severance benefits at the time of separation. Employers have always been advised to limit access to sensitive business information to only employees who need the access to do their work. Due to the Fifield decision, that advice is even truer today. While the Appellate Court essentially establishes a clear two-year rule, it does so when employers have never been more anxious about protecting their sensitive business information, whether in the context of cyber-attacks or a modern workforce in which most employees depart, and oftentimes before their second anniversaries.