When a company requests an employee execute a post-employment restrictive covenant, it surely expects that the covenant will protect it from improper conduct on the part of the employee following termination of the employment relationship. Restrictive covenants, however, will only be enforced in Illinois if an employee receives adequate consideration for his or her promise. What is adequate consideration? This is a question that has divided the federal court in Chicago.
Until the 2013 ruling in Fifield v. Premier Dealer Servs., Inc., 373 Ill.Dec.379 (1st Dist. 2013), most lawyers would have agreed that there was no bright-line rule with respect to adequate consideration in connection with a restrictive covenant executed by an at-will employee. In Fifield,however, the Appellate Court for the First District stated "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." According to the Appellate Court for the First District, this is the case, even if the employee resigns on his own instead of being terminated. Id. The Illinois Supreme Court declined to review this decision.
The applicability of the bright-line rule adopted in Fifield has twice been addressed by the federal court in Chicago, with varying results. First, in Montel Aetnastak, Inc. v. Miessen, 998 F.Supp.2d 694, 716 (N.D. Ill. 2014), Chief Judge Ruben Castillo refused to apply Fifield, stating "[g]iven the contradictory holdings of the lower Illinois courts and the lack of a clear direction from the Illinois Supreme Court, this Court does not find it appropriate to apply a bright line rule." Second, in Instant Technology, LLC v. Defazio, 12 C 491, __ F.Supp.2d __, 2014 WL 1759184 at *14 (N.D. Ill. 2014), Judge James Holderman rejected Montel, stating "[t]his court has reviewed and considered the Montel Aetnastak, Inc. v. Miessen, No. 13 C 3801, __ F.Supp.2d __, 2014 WL 702322 (N.D.Ill. Jan. 28, 2014) opinion by Chief Judge Castillo, for whom this court holds great respect. This court, however, predicts the Illinois Supreme Court upon addressing the issue would not alter the doctrine established by the recent Illinois appellate opinions, which clearly define a 'substantial period' as two years or more of continued employment." This disagreement in the Chicago federal court, of course, presents the question – can an employer enforce a restrictive covenant against an at-will employee with less than two years of continued employment?
This is clearly an important matter to all employers and will undoubtedly attract continued attention. From an employer's perspective, alternative forms of consideration, for example, in form of bonus payments, might be considered to avoid dispute over this matter.
Should you have any questions or need consultation regarding this or other related matters, you can contact Jason B. Hirsh at 312.476.7580.