Are Your Restrictive Covenants Enforceable? The Illinois Supreme Court Allows Fifield to Stand

The Illinois Supreme Court recently denied an employer’s leave to appeal the Illinois Appellate Court’s decision in Fifield v. Premier Dealer Services, Inc., No. 1-12-0327, 2013 IL App. (1st) 120327 (June 24, 2013). As a result, unless an
employee is given additional consideration beyond employment, an employee must be employed for at least 2 years in order for a restrictive covenant to the enforceable in Cook County, Illinois.

As a matter of background, and following up on our previous August 20, 2013 post on this ruling, the Illinois Appellate Court for the First District (which covers Cook County, Illinois) ruled in Fifield that, when the only consideration for a restrictive covenant is employment itself (i.e. the agreement to hire the employee), at least two years of continued employment is necessary to support the enforcement of the restrictive covenant. In Fifield, the plaintiff negotiated and executed an employment agreement containing both non-competition and non-solicitation provisions, but the sole consideration for those restrictions was the fact that the employee was being hired by Premier as an “at will” employee. Three months after the plaintiff began his employment, he resigned and immediately began to work for a competitor of Premier. When Premier sought to enforce the restrictive covenants, the trial court found them unenforceable for
lack of consideration because the plaintiff had only worked at Premier for three months.

In a somewhat surprising ruling, the Illinois Appellate Court upheld this ruling and ignored years of precedence establishing that an employer’s agreement to hire an “at will” employee in the first place constituted adequate consideration
for an employee’s agreement to abide by a restrictive covenant following employment. The court added that, without additional consideration, an employee must be employed for at least two years in order to constitute sufficient consideration to enforce a restrictive covenant.

In light of the recent denial of Premier’s leave to appeal in Fifield, the Illinois Supreme Court leaves Illinois employers — at least those in Cook County — in a difficult position in enforcing restrictive covenants. By way of example, if an employer already has an existing restrictive covenant with an “at will” employee who has less than two years at the company, the employer will likely not be able to enforce the restrictive covenant. In fact, under the Fifield ruling, an employee could conceivably work for 1 year and 364 days, resign and work for a competitor across the street, and the employer is left with the likely possibility that the restrictive covenant is still unenforceable.

In light of this monumental decision, employers are now forced to implement alternative strategies to enforce their new and/or existing restrictive covenants, at least against those employees with less than two years of service. These
strategies may include developing bonus/compensation programs (both pre-and post-hire) to provide the extra consideration sufficient to enforce the restrictive covenant. Additionally, depending on the circumstances and businesses location, employers could carefully draft choice of law and jurisdiction clauses to avoid disputes within the courts in Cook County. Employers could also carefully draft special recitals by highlighting the additional consideration being given to them in consideration for their agreement to be governed by a restrictive covenant. Finally, employers could also modify their employment agreements from maintaining an “at will” relationship to one where the employee can only be terminated for cause. Of course, this last strategy should be thoroughly vetted and discussed from a business and legal perspective.

As always, we are here to discuss with you this significant case, as well as the best way to protect your business from its impact. Please contact Jason Tremblay at ejtremblay@arnstein.com if you have any questions or would like to discuss.

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