Focus on Restrictive Covenants: Illinois Appellate Court Case May Change Landscape on Consideration Necessary to Support Restrictive Covenants Signed by At-Will Employees

    Newsletter/Bulletin
    July 12, 2013

    The Illinois Appellate Court for the First District has ruled that the commencement of at-will employment is not adequate consideration to support the enforcement of post employment restrictive covenants.

    In Fifield v. Premier Dealer Servs., Inc., Eric D. Fifield (Fifield) and his subsequent employer, Enterprise Financial Group, Inc. (EFG), filed a declaratory judgment action against Fifield’s former employer, Premier Dealer Services, Inc. (Premier), seeking to invalidate certain nonsolicitation and noncompetition covenants within an employee confidentiality and inventions agreement (the agreement). 2013 WL 3192931 (Ill. App. Ct. June 24, 2013). The employment arose when Premier acquired the subsidiary that Fifield had worked for during his prior employment with Great American Insurance Company. Although he signed the agreement before the commencement of the new employment, Fifield worked at Premier for only three months before resigning to accept a competitive position with EFG.

    Fifield and EFG asked the trial court to declare the restrictive covenants unenforceable for lack of consideration. They argued that employment must continue for a substantial period of time in order for the covenants to be enforceable under Illinois law. Pointing out that Illinois courts have held that two years of continued employment is sufficient, Fifield and EFG argued that Fifield’s three months of employment with Premier was not adequate consideration. Premier contended that the provisions were enforceable because Fifield was not employed by Premier when he was asked to sign the agreement, and that his new employment with Premier constituted adequate consideration. The trial court disagreed with Premier and declared the restrictive covenants to be unenforceable as a matter of law, due to lack of adequate consideration.

    The Appellate Court agreed with the trial court and affirmed the decision. In doing so, the Appellate Court refused to recognize a distinction between covenants signed at the beginning of the employment relationship and those signed after inception of employment (i.e., “afterthought” covenants). Instead, the Appellate Court stated, without extensive analysis of the issue or consideration of long-standing Illinois precedent to the contrary, that “Illinois courts have repeatedly held that there must be at least two years or more of continued employment to constitute adequate consideration in support of a restrictive covenant.” 2013 WL 3192931 at *5.

    Unless reversed or clarified, this decision may alter the landscape in Illinois with respect to the consideration necessary to support enforceable restrictive covenants in an at-will employment setting—especially as it applies to the commencement of new employment.

    The decision in Fifield provides a strong reminder that the law applicable to restrictive covenants is constantly evolving. If this decision stands, employers whose restrictive covenant agreements are governed by Illinois law may want to consider providing separate and additional consideration to at-will employees who are required to sign these agreements at the start of employment, such as a sign-on bonus, additional paid time off or other material benefits. Employers may also want to consider entering into new agreements with existing at-will employees who have not been employed for more than two years in order to address this issue as well. Ultimately, the proper approach to take will depend on the facts and circumstances of each situation.

    We will continue to monitor this decision and provide updates on any significant developments. If you have any questions about this update or our restrictive covenant practice please contact Nicholas Anaclerio, Anthony J. Ashley, Thomas R. Dee, James V. Garvey or Randall M. Lending or any other Vedder Price attorney with whom you have worked.