A Sea Change—Illinois Appellate Court Issues Key Ruling on Restrictive Covenant Agreements

The Illinois Appellate Court’s recent opinion in Fifield v. Premier Dealer Services, Inc. takes an aggressive stance on continued employment as consideration to support enforcement of a non-competition or non-solicitation agreement.

History

As we previously discussed in our blog post, the majority view in Illinois—the “continued employment doctrine”—is that two years of continued employment after an employee enters a restrictive covenant is “substantial continued employment” that makes the agreement enforceable without any additional consideration (such as payment, promotion, or other benefits). Under this view, continued employment lasting less than two years does not necessarily defeat consideration, but presents a tougher battle for enforcement.

The Sea Change

But Illinois state courts have previously only applied the continued employment doctrine to agreements entered into between employees and employers after the employment relationship begins. We are not aware of any Illinois state court decisions applying the continued employment doctrine to agreements between employers and employees that are entered into prior to or at the commencement of the employment relationship, that is until now. The sea change that Fifield presents is exactly that: if employment is the sole consideration for a restrictive covenant agreement (including prior to or at the commencement of the employment relationship), the consideration will not be valid until the employee is employed for at least two years.

The Fifield opinion also declares that “the two-year standard” is now “required” (versus a benchmark) under Illinois law—a mandate no other court has expressly asserted.

Fifield Background

Eric Fifield entered an employment agreement with a company that purchased his employer, worked for the purchasing company for just over three months, and then voluntarily resigned and went to work for a competitor. The facts in the Fifield case are quite similar to those in Brown & Brown, Inc. v. Mudron, holding that seven months of continued employment was insufficient consideration for a restrictive covenant. An important distinction, however, is that in Brown the employee was required to sign a non-competition agreement as a condition of continuing to work for the company that purchased his employer. In contrast, Fifield’s employer told him that his employment would end and the purchasing company separately offered him new employment conditioned on his agreement to the non-competition and non-solicitation terms. According to Fifield, this is a distinction without a difference—whether the agreement begins a new or amends an existing employment relationship, two years of employment is required.

Fifield negotiated for his employment agreement to provide that if he was fired without cause within his first year of employment, the non-competition and non-solicitation terms would be invalid. In other words, Fifield’s agreement gave him essentially the same protection that the continued employment doctrine provides—employees otherwise could be fired shortly after they enter these restrictive covenants but would be prohibited from finding work with a competitor. The court did not address these facts in its analysis. Instead, it applied and expanded a bright-line numerical rule that most courts have declined to explicitly recognize.

Employers Must Be Proactive

While it is an open question whether Fifield will be appealed, and if it is, whether the Illinois Supreme Court will weigh in on this issue, for now employers should be proactive, especially those in the First District. The Fifield mandate provides that less than two years will not by itself support a restrictive covenant agreement even at the commencement of the employment relationship. Employers should immediately consider including a monetary payment or added tangible employment benefits in exchange for non-competition or non-solicitation terms—both at the beginning and during the employment relationship.

Additional Information

Should you have any questions about this ruling or its implications on your workplace, please contact the authors, the Ogletree Deakins attorney with whom you normally work, or the Client Services Department at clientservices@ogletreedeakins.com.