Vedder Thinking | Articles Focus On Restrictive Covenants: Illinois Supreme Court Rejects Petition for Leave to Appeal in Fifield
In July 2013, we reported on the decision by the Illinois Appellate Court for the First District in Fifield v. Premier Dealer Servs., Inc., No. 1–12–0327, 2013 WL 3192931 (June 24, 2013). The Appellate Court ruled that there must be at least two years or more of continued employment to constitute adequate consideration in support of a restrictive covenant where no other consideration is provided. See id. at *4–5. The court’s ruling applies to all at-will employees, new or existing, who have not reached at least two years of continued employment after execution of a restrictive covenant agreement. This two-year threshold throws into question the enforceability of any restrictive covenant applicable to an at-will employee with less than two years of service whose agreement is governed by Illinois law.
On September 25, 2013, the Illinois Supreme Court denied the employer's appeal of the Appellate Court decision in Fifield. Thus, while it arguably may not control throughout all districts and divisions in Illinois, the decision is the most recent appellate court authority on this issue in Illinois. For employers whose restrictive covenant agreements are or may be governed by Illinois law, choices will have to be made about how to account for the Appellate Court's ruling. What may constitute adequate consideration to support restrictive covenants of an at-will employee other than two years of employment is unsettled under Illinois law. Do changes to restrictive covenants during the term of employment reset the two-year clock? What if those changes relax the restrictions? Regrettably, with the Illinois Supreme Court not taking up the issue, these and other questions remain to be decided by the lower courts.
Although each situation must be individually analyzed, employers should consider the following options as a general starting point:
- New At-Will Employees: Employers may want to provide consideration over and above simply hiring the employee, such as a sign-on bonus, additional paid time off or other material benefit that the new hire would not otherwise receive but for his/her agreement to abide by restrictive covenants. We suggest linking the additional consideration directly to the restrictive covenants.
- Existing At-Will Employees: Employers may want to enter into new agreements with employees who have been employed less than two years and provide additional consideration to them for the existing or new restrictive covenants. Another option is to condition the next raise, promotion or other employee benefit on the employee's execution of a new restrictive covenant agreement.
Employers also may consider potential ways to avoid application of the Appellate Court decision in Fifield. Provided there is reasonable basis to do so, employers could include choice of law provisions that call for the application of a state law other than Illinois to govern a restrictive covenant agreement where, for example, the employer has a significant presence outside of Illinois or where an employee works in a state other than Illinois. Another option is the inclusion of exclusive venue provisions that require a lawsuit to be filed in a forum that is not subject to the jurisdiction of the First District Illinois Appellate Court, which rendered the Fifield decision, provided either the employer or employee has a sufficient connection to such venue. Of course, the employer will want to review the approach which a given state or forum takes to the enforcement of restrictive covenants (and other issues in the agreements) before designating its law or exclusive venue as controlling.
We will continue to monitor this critical business and legal issue and report on significant developments. If you have any questions, please contact Nicholas Anaclerio, Anthony J. Ashley, Thomas R. Dee, James V. Garvey, Frederic T. Knape or Randall M. Lending or any other Vedder Price attorney with whom you have worked.