The First District Appellate Court of Illinois held that a non-compete agreement is not valid and enforceable if an employee is fired or resigns within two years. Fifield and Enterprise Finance Group, Inc. v. Premier Dealer Services, Inc., 2013 IL App (1st) 120327.
In the case, employee Fifield signed employer Premier's employment agreement that contained both a noncompetition and a nonsolicitation provision that lasted two years unless the employee was terminated without cause within his first year of employment. The employee began working on November 1, 2009, and he resigned from his position on February 10, 2010.
The trial court held that the non-competition and non-solicitation provisions were unenforceable as a matter of law for lack of consideration. The Appellate Court affirmed.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 Court held that it did not matter whether the employee signed the restrictive covenants before or after he was hired since the non-competition and nonsolicitation provisions clearly governed the employee's post employment conduct.
Premier’s also argued that the offer of employment itself was sufficient consideration to support the restrictive covenants. The Appellate Court 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 post-employment restrictive covenant.
Generally, a non-compete agreement requires that an employee not work in an industry by not working for a competitor or starting a competing company.Non-compete clauses are frequently added to severance agreements, though some employees are asked to sign a covenant not to compete when hired or during the course of employment.Some of these non-compete agreements are unenforceable because they are overly-broad or for some other reason. However, even if a non-compete would be unenforceable under Illinois law, its may still cause a prospective employers not to hire an employee.Be sure to have an attorney review any non-compete or severance agreement before signing it.
On December 2, 2011, the Illinois Supreme Court issued an important decision concerning restrictive covenants in Reliable Fire Equipment Co. v. Arredono. In the matter, former Reliable employees, who formed their own company, sought judgment that the restrictive covenants not to compete that they had signed were unenforceable.The Court affirmed the legitimate business interest requirement three prong test to determine enforceability of restrictive covenants not to compete. Three-part test for reasonableness of restrictive covenants includes legitimate business interest of employer as an elements. The Court held that “whether a legitimate business interest exists is based on the totality of the facts and circumstances of the individual case. Factors to be considered . . . include . . . the near-permanence of customer relationships, the employee’s acquisition of confidential information through his employment, and time and place restrictions." Further, the importance of each factor depends on the particular facts and specific circumstances of each case.Likewise, the Court held that the Kolar two-factor test "is no longer valid." Reliable Fire Equipment Company v. Arredondo, 2011 IL 111871 (2011).http://www.state.il.us/court/Opinions/SupremeCourt/2011/December/111871.pdf