In Fifield v. Premier Dealer Service, 2013 IL App. (1st) 120327 (June 24, 2013), the Illinois Appellate Court ruled that post-employment restrictive covenants were unenforceable because of a lack of adequate consideration.
The employee, Eric Fifield, was told that his employment with his employer would terminate as a result of the sale of the Company. The purchaser of the Company offered employment to Fifield and as a condition to such employment, Fifield was required to sign a nonsolicitation and noncompetition agreement. The nonsolicitation and noncompetition provisions extended for a period of two years from the date of termination of employment. The employee, before signing the agreement, negotiated with the employer to add a provision which limited the applicability of the restrictive covenants if Fifield was involuntarily terminated without cause during the first year of his employment. Fifield worked for three (3) months, resigned, and went to work with a competitor. Thereafter, he and his new employer filed a complaint in the state court seeking a declaratory judgment that provisions of the agreement were invalid and unenforceable. Fifield’s former employer countersued seeking to enforce the nonsolicitation and noncompetition provisions.
The Appellate Court affirmed the trial court’s grant of declaratory relief to Fifield. The Court found that post-employment restrictive covenants are subject to strict scrutiny because they operate as partial restrictions on trade. In order to be upheld, (i) the terms must be reasonable, (ii) the covenant must be ancillary to a valid contract, and (iii) the covenant must be supported by adequate consideration. The Court only addressed the adequate consideration issue, and determined that there must be at least two years or more of continued employment to constitute adequate consideration for post-employment restrictive covenants. It made no difference that: (i) Fifield was not employed when he signed the agreement; (ii) he voluntarily resigned (as opposed to being terminated by his employer); or (iii) he had negotiated a one year protection of his employment.
The case leaves employers subject to Illinois law in a quandary. What must they offer to employees to ensure that adequate consideration is given to allow enforcement of restrictive covenants? An offer of employment alone will not be sufficient. Employers may be wise to offer a sum of money to specifically compensate employees for the restrictive covenants. Another suggestion may be to condition post-employment benefits (e.g., incentive bonus plans or stock option plans) upon compliance with restrictive covenants.
Should you have any questions regarding restrictive covenants or employment law in general, please contact Terry Connerton at 412.918.1160.