For the last decade, one of the biggest issues in Illinois noncompete law has been what constitutes adequate consideration for a post-employment restrictive covenant, apart from employment lasting at least two years after the agreement was signed. The “24 month rule” set forth in Fifield v. Premier Dealer Services, Inc., 2013 IL App (1st) 120327 has caused much head-scratching, and the Illinois legislature essentially punted on the issue in the recent amendments to the Illinois Freedom to Work Act, 820 ILCS 90/1, et seq. (effective as of January 1, 2022). (Full disclosure: One of the authors of this post advised the Illinois Chamber of Commerce in its negotiations with the State legislature over this law and, hence, can speak from personal experience on the legislative history of this “punt.”)
Earlier this month, in Midwest Lending Corp., v. Horton and PrimeLending Co., 2023 IL App (3d) 220132, the Illinois Appellate Court weighed in on the topic, holding that if an employer is going to point to a pre-employment payment as consideration for a post-employment restrictive covenant, then the payment must be expressly delineated as consideration for the restrictive covenant. In that case, plaintiff Midwest Lending and defendant Horton entered into two agreements prior to Horton’s commencement of employment with Midwest Lending. The first agreement was an offer letter describing Horton’s compensation and terms of employment, which offer letter provided for a $25,000 signing bonus. The second agreement – signed three weeks after the offer letter – included a nonsolicitation provision (“the Nonsolicitation Agreement”). The offer letter did not mention the Nonsolicitation Agreement, nor did the Nonsolicitation Agreement reference the $25,000 signing bonus. Moreover, the Nonsolicitation Agreement contained an integration clause which, according to the Court, established “that the entirety of the parties’ agreement addressing the nonsolicitation provision was contained within the four corners of that document.”
Approximately seven months after Horton commenced employment with Midwest Lending, he terminated his employment and joined a competitor. Midwest Lending subsequently sued him and his new employer for allegedly violating his Nonsolicitation Agreement.
Because Horton only worked for Midwest Lending for seven months after signing the Nonsolicitation Agreement (not the 24 months required under the Fifield “24 month rule”), a key question on appeal was whether the $25,000 signing bonus set forth in the offer letter was consideration for the Nonsolicitation Agreement. The Court held that it was not because the signing bonus was not “specifically exchanged” as consideration for the Nonsolicitation Agreement.
The takeaway from this case is that if an employer will be providing consideration for a restrictive covenant in addition to mere employment (e.g., a bonus payment, a promotion, a raise, stock options, or eligibility to participate in a severance program), then this fact should be clearly spelled out in the pertinent agreement(s).