Recently, the Illinois First District Appellate Court (which covers Chicago) issued the attached decision in Fifield v. Premier Dealer Services, Inc. In this extremely important decision, the appellate court effectively ruled that – in the absence of any other legally sufficient consideration (e.g. money, employment for a fixed term) – an employer has to give a new or existing employee at least two years of continued employment to support a restrictive covenant ( a promise not to compete, solicit, disclose confidential information).
Prior to the Fifield decision, the law in Illinois had been that when an employer asked an existing (as opposed to new) employee to sign a new restrictive covenant, it had to provide something additional of value to the employee in exchange for the new restrictions. Under the old law, continuing employment of anywhere between 8 months and 24 months or months after that demand for a restriction could possibly suffice as that something of value. The rule did not apply to new employees, as the initial employment relationship was deemed to be adequate consideration for the employee’s promise not to compete, etc. The First District Court of Appeals has now expanded these concepts to new employees who are required to sign restrictions at the onset of employment, and seems to have made the 24 month rule a bright-line minimum. Furthermore, the Fifield court applied this consideration rule in a case where the employee had chosen to resign early on during the employment relationship, and not just to cases where the employer fired the restricted employee. Consequently, the Fifield decision arguably gives employees a means (i.e. resignation) to unilaterally control the enforceability of the post-termination restrictions on solicitation and competition to which they are subject.
At end, this decision might be seen as another bellwether change in Illinois law on restrictive covenants — one that comes only a year after the Illinois Supreme Court had issued its decision in Reliable Fire Equipment v. Arredondo, which arguably made it easier for Illinois employers to enforce restrictive covenants . Although it is not certain that Fifield will be upheld by the Illinois Supreme Court, it is currently the state of the law and strongly suggests that employers at least consider giving key employees with less than two years of employment some additional consideration (e.g. a payment or employment for a term). It also means that companies that acquire the assets of another company and then offer key employees of the target new employment must carefully consider whether the business of the target may be adequately continued post-acquisition through such employees.
For more information about the Fifield decision, or L&G Law Group LLP’s employment law practice, please contact partner Rob Smeltzer at (312) 456-7952 or firstname.lastname@example.org.
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