This recent case out of Cook County, affirmed by the Illinois Court of Appeals, sends a bit of a scary message for employers hoping to rely on non-competes that are entered into as a condition of employment. Fifield v. Premier Dealer Services, Inc. involves an insurance salesman marketing finance and insurance products to the automotive industry. He went to work for a subsidiary of Great American Insurance Company. Great American ended up selling the subsidiary to Premier Dealership Services, Inc. and terminating Fifield’s employment. Premier, however, offered to employ him, but with the requirement that he sign a non-compete agreement.
Of course, things didn’t work out – Fifield left Premier in the middle of February the following year and began working for a competitor in violation of the covenant. He sued to invalidate the non-compete agreement, arguing that he had not worked long enough at Premier for there to be valid consideration to support his non-compete agreement. Premier filed a counterclaim, asking for an injunction to enforce the non-compete agreement.
Illinois is one of those states that enforces a post-hiring non-compete agreement as long as the employer provides adequate consideration in the form of either compensation or additional employment. Case law in Illinois indicates that the additional employment should be for a minimum of two years. What makes this case unique, and particularly troubling, is that most courts recognize a distinction between consideration necessary for post- hiring non-compete agreements and the consideration required for pre-hiring non-compete offers. Pre-hiring non-compete offers are generally considered to have valid consideration supporting them because the offer of employment is contingent on the employee signing the agreement. Post hiring non-compete agreements, since they are not tied to an offer of employment, typically require additional compensation, either in terms of money, benefits, or continued employment. As noted, in Illinois the continued employment for post hiring non-compete agreements is generally considered to be at least two years.
Inexplicably, both the trial court and the appellate court found that whether an employment agreement covenant is offered either pre- or post-hiring is irrelevant – the employee must be employed for a period of two years, minimum, for any restrictive covenant to be enforceable. Moreover, the court found that it doesn't matter whether the employee resigns or is terminated by the employer--if the term of employment doesn't hit the magic two year point, the covenant fails for lack of consideration (again, assuming there has been no money payment to support the covenant).
This decision ought to scare the living daylights out of most employers who rely on non-competes to protect their trade secrets, intellectual property and business good will. For one thing, it means that there needs to be a special compensation or benefits sweetener added to any non-compete agreement, whether offered at the beginning of employment, or later, to provide any meaningful protection. Otherwise, an employee could sign the non-compete agreement, get a better offer from a competitor two months later, and resign, with no fear of enforcement at all. The decision categorically ignores the distinction between an employer and employee adjusting their offer and counter-offer in negotiating for a job (presumably, the non-compete's value is factored into either the terms of employment or some other aspect of the job offer) and the additional consideration needed to support a contract signed after an employee is hired.
This case looks like one that should be appealed to the Illinois Supreme Court, but may simply be allowed to languish. For employers in Cook County and the Chicago area, this is a very troubling result, and one that probably cries out for some type of legislative fix.
No comments:
Post a Comment