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Focus on Restrictive Covenants: Illinois Appellate Court Case May Change Landscape on Consideration Necessary to Support Restrictive Covenants Signed by At-Will Employees

The Illinois Appellate Court for the First District has ruled that the commencement of at-will employment is not adequate consideration to support the enforcement of post employment restrictive covenants.

In Fifield v. Premier Dealer Servs., Inc., Eric D. Fifield (Fifield) and his subsequent employer, Enterprise Financial Group, Inc. (EFG), filed a declaratory judgment action against Fifield’s former employer, Premier Dealer Services, Inc. (Premier), seeking to invalidate certain nonsolicitation and noncompetition covenants within an employee confidentiality and inventions agreement (the agreement). 2013 WL 3192931 (Ill. App. Ct. June 24, 2013). The employment arose when Premier acquired the subsidiary that Fifield had worked for during his prior employment with Great American Insurance Company. Although he signed the agreement before the commencement of the new employment, Fifield worked at Premier for only three months before resigning to accept a competitive position with EFG.

Fifield and EFG asked the trial court to declare the restrictive covenants unenforceable for lack of consideration. They argued that employment must continue for a substantial period of time in order for the covenants to be enforceable under Illinois law. Pointing out that Illinois courts have held that two years of continued employment is sufficient, Fifield and EFG argued that Fifield’s three months of employment with Premier was not adequate consideration. Premier contended that the provisions were enforceable because Fifield was not employed by Premier when he was asked to sign the agreement, and that his new employment with Premier constituted adequate consideration. The trial court disagreed with Premier and declared the restrictive covenants to be unenforceable as a matter of law, due to lack of adequate consideration.

The Appellate Court agreed with the trial court and affirmed the decision. In doing so, the Appellate Court refused to recognize a distinction between covenants signed at the beginning of the employment relationship and those signed after inception of employment (i.e., “afterthought” covenants). Instead, the Appellate Court stated, without extensive analysis of the issue or consideration of long-standing Illinois precedent to the contrary, that “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.” 2013 WL 3192931 at *5.

Unless reversed or clarified, this decision may alter the landscape in Illinois with respect to the consideration necessary to support enforceable restrictive covenants in an at-will employment setting—especially as it applies to the commencement of new employment.

The decision in Fifield provides a strong reminder that the law applicable to restrictive covenants is constantly evolving. If this decision stands, employers whose restrictive covenant agreements are governed by Illinois law may want to consider providing separate and additional consideration to at-will employees who are required to sign these agreements at the start of employment, such as a sign-on bonus, additional paid time off or other material benefits. Employers may also want to consider entering into new agreements with existing at-will employees who have not been employed for more than two years in order to address this issue as well. Ultimately, the proper approach to take will depend on the facts and circumstances of each situation.

We will continue to monitor this decision and provide updates on any significant developments.

© 2022 Vedder PriceNational Law Review, Volume III, Number 194

About this Author

Nicholas Anaclerio,  Labor and Employment Attorney, Vedder Price law firm

Nicholas Anaclerio is a Shareholder and a member of the firm’s Labor and Employment practice area.

He has experience defending wage and hours class actions, lawsuits and charges involving alleged sexual harassment and retaliation, gender, race, age, national origin, disability and religious discrimination under Title VII of the 1964 Civil Rights Act, the Americans With Disabilities Act, the Family and Medical Leave Act, the Fair Labor Standards Act, the Illinois Whistleblower Act, the Sarbanes Oxley Act of 2002 and related state and federal laws. He is a seasoned trial attorney with...

Anthony J. Ashley, Vedder Price Law Firm, Litigation Attorney

Anthony J. Ashley joined Vedder Price in 1998 and is currently a Shareholder in the Litigation practice area. Mr. Ashley has represented clients in pretrial, trial and appellate proceedings in state and federal courts across the United States involving complex commercial matters, including executive employment contracts and compensation, professional liability, RICO, breach of fiduciary duty, misappropriation of trade secrets, defamation and environmental liability. He also has extensive experience with emergency injunctive proceedings at both the state and federal levels

Thomas R. Dee, Vedder price law firm, Litigation attorney

Thomas R. Dee is a shareholder at Vedder Price P.C. and a member of the Litigation and Intellectual Property Practice Areas of the firm.  He has extensive trial experience in complex commercial matters, including breach of contract, products liability, trademark, copyright and patent infringement, trade secret violations and enforcement of restrictive covenants.  Mr.Dee has substantial experience in actions involving temporary restraining orders and preliminary injunctions.

James V. Garvey, Litigation Attorney, Vedder Price Law Firm

James V. Garvey is a Shareholder at Vedder Price and a member of the firm’s Litigation Practice Area.  He maintains a broad litigation and counseling practice covering a range of substantive areas in both federal and state courts throughout the country. He has handled litigation and trial work for numerous major corporate clients and individuals on matters involving complex trust and financial institutions issues, directors and officers liability, antitrust and trade regulation, toxic tort exposure, products liability, psychiatric malpractice, employer-union and employer-employee relations...

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Randall M. Lending, Vedder Price Law Firm, Litigation Attorney

Randall M. Lending joined Vedder Price in 1988. He is a Shareholder and a member of the firm’s Litigation practice area. He is also Co-Chairman of the firm’s Securities and Broker-Dealer Litigation sub-practice group and a member of the firm’s Trade Secrets/Unfair Competition practice group.