Enforceability of Non-compete Agreements in Illinois—Is Two Years Now the Standard?

Recently, the Illinois Appellate Court issued a significant opinion on the enforceability of restrictive covenants in employment agreements where those agreements are reached after an employee has already begun work.  The decision, Fifield and Enterprise Financial Group, Inc. v. Premier Dealer Services, Inc., 1-12-0327 (1st Dist. 2013) (“Fifield”), impacts how employers structure their post-employment restrictive covenant arrangements going forward. It should also cause employers to review their agreements in force now and consider whether changes may be necessary.  

Historically, post-employment restrictive covenants have been carefully scrutinized by Illinois courts.  The courts consider the terms of the agreement, such as whether the restrictive covenant is supported by adequate consideration, and whether the terms of the agreement are reasonable and necessary to protect a legitimate business interest of the employer.  However, there was never a bright line test as to what any of the terms, such as “reasonable,” “adequate consideration,” or what a “legitimate business interest” of an employer may be. 
Prior to the recent decision in Fifield, the standard in Illinois was that “employment for a substantial period of time beyond the threat of discharge is sufficient consideration to support a restrictive covenant in an employment agreement.” Brown & Brown, Inc. v. Mudron, 379 Ill. App. 3d 724, 728 (2008) (Fifield, 1-12-0327, at 5, emphasis added).  Therefore, while employment could equal sufficient consideration to enforce such restrictive covenants, no clear standard as to what was in fact a “substantial period of time” was ever established. 

In the recent Fifield decision, however, the Court sets out a bright-line rule to establish adequate consideration:  two years of employment.  In Fifield, an employee resigned from the employer, Premier, after only three months and thereafter began working for its competitor.  As a condition of his employment at Premier, he signed an agreement which included both non-solicitation and non-competition clauses. The Court held that the agreement was unenforceable because it lacked “adequate consideration,” and noted:
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. This rule is maintained even if the employee resigns on his own instead of being terminated.

Fifield, at 6 (internal citations omitted). 
While the Fifield Court cites to other decisions that have “repeatedly held that there must be at least two years or more of continued employment,” there had never before been such a bright line rule establishing two years as adequate consideration.  Fifield, in effect, sets a mandatory two-year minimum employment rule for the enforcement of such restrictive covenants. 

In light of this case, it appears that post-employment non-competition agreements in Illinois will be scrutinized even more closely, and will be even more difficult to enforce against those employees who have not worked for a period of two years or greater.  Fifield does not address whether other forms of consideration, such as intangible benefits, may be considered as to the enforceability of an agreement.  The case also does not address the enforceability of confidentiality or non-disclosure provisions in employment agreements.
We know that non-competition agreements are ever popular in the healthcare sector, including with physicians, long-term care facilities, and home health agencies.  In light of the Fifield decision, healthcare providers should revisit their agreements with counsel—particularly those entered into on a “post-employment” basis—to determine the enforceability of any restrictive covenant term. Employers should also consider whether offering other types of consideration in the event that an employee who has worked for less than two years tries to breach such an agreement. 
For additional information on employment agreements in Illinois, or if you have any questions as to whether Fifield will impact your business, please contact Mark Bina (mbina@kdlegal.com) or Jaya White (jwhite@kdlegal.com).