The First District Appellate Court, in its recent decision in Fifield and Enterprise Finance Group, Inc. v. Premier Dealer Services, Inc.,1 held that a noncompetition agreement is not valid and enforceable if an employee is fired or resigns within two years. Illinois companies can still require newly hired workers to sign noncompetition agreements, but if the employee is employed for less than two years the restrictive covenant will lack the consideration necessary to be enforceable by an employer. There must be two years of continuous employment to be considered adequate consideration to support a postemployment restrictive covenant.
Premier Dealer Services, Inc. (“Premier”) made an offer of employment to Fifield (“Plaintiff”). As a condition to employment, Premier required Plaintiff to sign an employment agreement that contained both a noncompetition and a nonsolicitation provision that lasted two years. After negotiations between Plaintiff and Premier, the noncompetition and nonsolicitation provisions of the final employment contract extended for two years unless Plaintiff was terminated without cause within his first year of employment. In that case, the restrictive provisions did not apply.
Plaintiff began his employment at Premier on November 1, 2009, and he resigned from his position on February 10, 2010.
On March 5, 2010, Plaintiff and his new employer filed a complaint in the Circuit Court of Cook County for declaratory relief. The complaint requested the Court declare the noncompetition and nonsolicitation provisions of the Plaintiff’s employment contract unenforceable as a matter of law for lack of adequate consideration.
Premier filed an answer, affirmative defenses, and a counterclaim seeking to enforce the noncompetition and nonsolicitation provisions.
After argument, the trial court granted Plaintiff’s motion for summary judgment. The Court held that the noncompetition and nonsolicitation provisions Plaintiff signed were unenforceable as a matter of law for lack of consideration. Premier appealed.
Appellate Court affirmed
The First District affirmed the trial court and found that the two year noncompetition and nonsolicitation terms of the Plaintiff’s employment contract were unenforceable for lack of consideration.
A. The restrictive covenants were unenforceable despite the Plaintiff signing his employment contract before beginning employment
On appeal, Premier first argued that the two year consideration rule recognized by Illinois courts did not apply because the Plaintiff signed the restrictive covenants before he was hired.
The Appellate Court soundly rejected Premier’s first argument. The Court cited to Brown & Brown, Inc. v. Mudron2 and held that it did not matter whether Plaintiff signed the restrictive covenants before or after he was hired since the noncompetition and nonsolicitation provisions clearly governed the Plaintiff’s post employment conduct.
B. Employment itself is not adequate consideration to enforce a postemployment restrictive covenant
Premier’s second argument on appeal was that the noncompetition and nonsolicitation provisions of the employment agreement were enforceable because there was adequate consideration given to support the provisions. Premier argued that the offer of employment itself was sufficient consideration to support the restrictive covenants.
The Appellate Court rejected this argument as well. The Court began by stating the elements of an enforceable restrictive covenant. The Court noted that postemployment restrictive covenants must be: (1) ancillary to a valid contract; and (2) supported by adequate consideration.3 The Court once again followed Brown & Brown, Inc., and held that at-will employment can constitute an “illusory benefit” and that “continued employment for two years or more” was necessary to constitute adequate consideration to support a postemployment restrictive covenant.4
Implications of Fifield
By inviting employees to breach restrictive covenants with impunity, Fifield could prove to be troublesome for employers. As long as an employee resigns within two years of their start date, Fifield supports the notion that restrictive covenants will not stick to employees. Additionally, by viewing at-will employment as an “illusory benefit” this case also suggests that at-will employment is insufficient to constitute consideration to enforce postemployment restrictive covenants. ■