As two federal courts recognized in February 2015, Illinois law is unsettled as to the duration of continued employment that is sufficient consideration to support a non-compete agreement. In Bankers Life And Casualty v. Miller, a February 2015 federal court decision applying Illinois law, the court held that there is no bright line test for the length of continued employment sufficient to support a post-employment restrictive covenant specifically rejecting the argument that employment less than two years is inherently insufficient consideration under Illinois law. And in Cumulus Radio Corporation v. Olson and Alpha Media, the court recognized that the Illinois Supreme Court would likely embrace the same sort of fact specific approach to assessing the adequacy of consideration that it applies to determine whether the restrictions are reasonable.
The Bankers Life decision highlights two problems inherent when the only consideration for a post-employment restrictive covenant is continued employment. First, there is uncertainty concerning the duration of continued employment sufficient to support such a restriction. Second, courts have held the duration of employment insufficient to support the restriction even where the employee quit to take a position with a competitor to compete in violation of the restrictive covenant. An employee may avoid post-employment restrictions by voluntarily taking a position with a competitor before he has been employed for a “sufficient” duration. The court in Cumulus Radio Corporation v. Olson and Alpha Media, underscored the illogic of the failure to give weight to the reason an at-will employee’s employment noting that allowing an employee to void the consideration by quitting for any reason at any time makes restrictive covenants voidable at the employee’s whim.
The approach taken by Illinois courts with respect to continued employment as the sole consideration for post-employment restrictions poses two challenges for employers relying on restrictive covenants to protect their businesses. First, what constitutes a “substantial” period of time sufficient to support an enforceable restrictive covenant in an at-will employment relationship under Illinois law is anything but clear. And second, the employee may be vested with too much control over whether the restrictions on post-employment competition will be enforced. The Illinois Supreme Court has not defined the length of employment sufficient to support a restrictive covenant. The majority of the federal courts that have attempted to predict how the Illinois Supreme Court would resolve the issue have concluded that it is unlikely that the Illinois Supreme Court will establish a bright line test.
An objective of post-employment restrictive covenants is to prevent an employee from taking an employer’s business assets that she obtained solely by virtue of her employment. A goal in drafting contracts is to limit transactional risk. Consequently, without addressing whether continued employment may provide sufficient consideration for an enforceable post-employment restrictive covenant, pragmatism dictates drafting such an agreement to reduce the uncertainty over whether the duration of continued employment is “sufficient” to support enforcement of the restrictions.
The transactional uncertainty inherent when post-employment restrictions tied solely to continued employment is a problem that can be prevented by tailoring the restrictive covenant to the specific employment relationship rather than leaving it an open-ended proposition. There are many different ways of addressing this issue, and there is no one size fits all solution. For example, an employer “pay” for the restriction by earmarking some portion of the compensation to be paid to the employee as payment for the post-employment restriction. This solution avoids the issues associated with tying the restriction to continued employment. Although this may avoid the issue of uncertainty, a downside of this approach is that in the event of a breach, the employee may argue that the amount paid for the restriction is the measure of the damages associated with breach. Alternatives include providing employment for a specific duration rather than on an at-will basis or tying the restriction to benefits to be conferred on the employee with the employment such as training. Best practices dictate an evaluation of the assets to be protected through the restriction and tailoring the contract, including the consideration for the post-employment restrictions, to that objective. And there is no time like the present to revisit your company’s post-employment restrictions to re-evaluate whether they need to be fine-tuned to better protect your business.