Recently the Illinois Appellate Court ruled that, absent other consideration, at-will employees must remain employed at least two years to justify non-competition and non-solicitation covenants. In light of this new decision, to avoid having restrictive covenants with at-will employees stricken for lack of consideration, employers should revisit their employee restrictive covenants and decide whether to provide additional consideration beyond continued at-will employment.
History of restrictive covenants in Illinois
Illinois law has long required employers to provide adequate consideration in exchange for requiring employees to agree to restrictive covenants such as covenants not to compete, covenants not to solicit customers or employees, or covenants not to disclose confidential information. The consideration may take many forms, such as a guaranteed period of employment, a signing bonus, or even continued at-will employment.
Although courts allow continued at-will employment to support restrictive covenants, they have expressed concern that this form of consideration may be illusory because the employer could terminate the employment shortly after the employee agrees to the restrictive covenant. To address this concern, Illinois courts have required at-will employment to be for a “substantial” period of time. Without adopting a bright-line rule about what qualifies as “substantial,” Illinois courts have held that three months and seven months of continued employment was not long enough to support two-year restrictions,1 while in other cases two or more years of employment was sufficient.2
The Fifield decision
In an opinion issued June 24, 2013, the Illinois Appellate Court ruled in Fifield v. Premier Dealer Services, Inc. that for continued at-will employment to qualify as adequate consideration to support a restrictive covenant, the employment must last at least two years. 2013 IL App (1st) 12037 ¶ 19. Fifield worked for a subsidiary that was sold to Premier. As a result of the sale, Fifield was slated to lose his job, but Premier offered to keep him employed if he agreed to two-year noncompetition and non-solicitation restrictions. Fifield got Premier to agree that the restrictions would not apply if Premier terminated his employment without cause during the first year. Three months after making the deal, Fifield left to join a competitor.
In the ensuing litigation, Premier argued that the restrictive covenants were supported by adequate consideration because Premier agreed to keep Fifield employed and agreed not to enforce the restrictions if Premier fired him without cause during the first year. Premier also argued that the consideration was not illusory because it was Fifield who chose to leave. The court rejected these arguments. It did not matter to the court that Fifield chose to leave or that he agreed to the restrictions as a “new,” as opposed to an existing, employee. Id. ¶ 17. And although at one point in the opinion the court acknowledged that under existing Illinois cases, two years of continued employment “generally” was enough to support restrictive covenants (id. ¶ 17), the court appeared to turn that general rule into a bright-line test by holding that Fifield’s three months of employment at Premier was “far short of the two years required for adequate consideration under Illinois law.” Id. ¶ 19.
The court did not indicate whether it would have relaxed the two-year employment requirement if the restrictive covenants were for a period less than two years. The court also did not address what other forms of consideration might be sufficient to support restrictive covenants. Unless the Illinois Supreme Court accepts an appeal and reverses the opinion, employers should anticipate thatunless they provide additional consideration to support restrictive covenants by their at-will employees, an employee’s continued employment for less than two years likely will not be sufficient consideration.
What this means for your company
To address this, employers may consider a range of options, including offering their at-will employees a signing bonus or other monetary compensation tied to the signing or continuation of the restrictive covenant. In some cases the employer might decide to share confidential or proprietary information that it would not otherwise share without the restrictive covenant. The key is that the employer must provide some real benefit to the employee beyond what the employee would receive anyway if the employee did not agree to the restrictive covenant.