Do You Have Non-compete Agreements With Your Employees? Beware of the Two Year Rule

Illinois employment situationsThe Illinois Appellate Court for the 1st District (Cook County) set out what it deemed a clear cut rule in Illinois employment situations: An employee must be employed for a minimum of two years after signing an agreement containing a restrictive covenant (i.e. non-competition or non-solicitation) in order for the covenants to be enforceable. The Court further set out that this rule will apply regardless of whether the employee is terminated by the employer or the employee resigns on his or her own accord; the rule also applies regardless of whether the employee signed the agreement prior to employment, or as a condition of continuing employment.

This case should serve as notice to employers that merely hiring an employee (or retaining an existing employee) is not sufficient consideration to enforce a non-compete or non-solicitation clause, and that if the employee must remain employed for a minimum of two years, regardless of whether that employee resigns or is terminated by the employer.

It should be noted, however, that this case (Fifield v. Premier Dealer Services, Inc. 2013 IL App (1st) 120327) appears to only apply to employees who are “at-will” and makes no pronouncements regarding situations in which the restrictive covenant is associated with the sale of a business or the employment is not at-will. This case also does not address restrictive covenants in which the emploee receives additional consideration in addition to continued employment. While this case could be further appealed to the Illinois Supreme Court, as it currently stands the rule set out in this case currently governs restrictive covenants in Cook County.

Finfield involved a man that worked for an insurance administrator, which was then purchased by another company. Fifield was offered employment with the purchasing company, and as a condition of employment was required to sign a “Employee Confidentiality and Inventions Agreement” that contained a two year, post-employment, non-competition and non-solicitation provision. Fifield accepted the employment and signed the agreement, and then resigned 3 months later to work for a competitor. Fifield and the new employer then sued for declaratory relief that the restrictive covenants were not enforceable, which the district court awarded and the appellate court affirmed.

What this means for a business owner (at least in Cook County, for now) is that non-competition or non-solicitation previsions will be extremely difficult to enforce against short-term, at-will employees who are only offered employment or continued employment in exchange for agreeing to these covenants. Under the reasoning of this case, it appears that employees can breach these agreements as long as they resign within two years from their start date (or date an agreement is signed).

Employers who wish to have a higher likelihood of enforcing restricting covenants should consider offering additional consideration beyond merely employment. This may include monetary incentives, for instance raises, bonuses, or cash payments, or may also include other tangible benefits as consideration, such as access to confidential information or a promotion.

Be aware this is a brief discussion of just one aspect governing restrictive covenants. You should be sure that all aspects of your employment agreements comply with Illinois law to give you the best opportunity to enforce them at a later date.

Should you have any questions about non-compete agreementsor any other laws that may affect your business, or would like to schedule a free initial consultation, please contact Waltz, Palmer & Dawson, LLC at (847)253-8800 or contact us online.

Waltz, Palmer & Dawson, LLC is a full-service law firm with various areas of service to assist your business, including: Employment Law, Intellectual Property, Commercial Real Estate, Litigation and general Business Law services. Individual services include Estate Planning, Wills and Trusts, Probate, Guardianship, Divorce and Family Law.

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