Latest Illinois Ruling on Non-Compete Agreements

Latest Illinois Ruling on Non-Compete Agreements

The Illinois Court of Appeals for the First Appellate Division recently issued its decision in the case Fifield v. Premier Dealer Services, Inc. In that case, the Court held that non-competition agreements – commonly known as "non-competes" – for at-will employees are valid only if the employee was employed for at least two continuous years.

Eric Fifield was originally employed by Premier Dealer Services, Inc. As a condition of his employment, Premier required Fifield to sign an "Employee Confidentiality and Inventions Agreement" which included, among other things, non-competition and non-solicitation provisions. The relevant part of the agreement provided that should Fifield's employment terminate for any reason, Fifield would (1) not directly compete with Premier by accepting business from any former customers of Premier and (2) not solicit business away from Premier. Fifield accepted the offer of employment and signed the agreement on November 1, 2009. On February 12, 2010, Fifield resigned from his position with Premier and began working for Enterprise Financial Group, Inc. Fifield and his new employer subsequently sought a court declaration that the restrictive covenant was unenforceable.

In its written decision, the Court emphasized that post-employment restrictive covenants, like the one at issue in this case, are carefully scrutinized by Illinois courts because they operate as partial restrictions on trade. To be enforceable, a restrictive covenant must, among other things, be supported by adequate consideration. In short, the concept of legal consideration requires that contracts contain a bargained-for exchange. In other words, both contracting parties must generally make some promise in exchange for the benefit they each receive. This requirement often poses a problem in the world of at-will employment. In such cases, an employer's promise of employment is illusory – that is, the employer effectively promises nothing at all because the employee may be fired at any time, for any reason. Prior Illinois law made clear that "continued employment for a substantial period of time beyond the threat of discharge" is sufficient consideration to enforce a restrictive covenant. In Fifield v. Premier Dealer Services, Inc., the Court drew a bright-line rule, holding that such a period of time requires at least two years of continued employment. Because Fifield resigned approximately three months following his employment with Premier, the Court properly concluded that the restrictive covenant was not supported by adequate consideration. As such, the restrictive covenant was unenforceable. The Court also made clear that the two-year requirement applies whether the employee resigns or is terminated.

Significantly, this new rule applies only in parts of Illinois. Many other states, including Missouri, follow a different rule with regards to the enforceability of restrictive covenants. To view the Court's decision in whole, click here.

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