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).