Some Clarity to What is Sufficient Consideration for Non-Competes in Illinois
Since the much-discussed Fifield case from the Illinois appellate court two years ago, all that could be said with confidence was that, unless someone was employed for at least two years after signing a restrictive covenant agreement, its enforceability was highly questionable. Practitioners in Illinois have been recommending that employers provide consideration in addition to employment, such as a “sign on” bonus tied to the restrictions or any other consideration that would not be given but for the individual’s agreement to the restrictions. In the next breath, practitioners have been telling their clients that even the additional consideration might not be enough to bind employees employed for less than two years. Uncertainty is everyone’s enemy in this area, and there has been great uncertainty for the past two years. But that uncertainty recently has been reduced by the same appellate court’s ruling in McInnis v. OAG Motorcycle Ventures, Inc. decided June 25, 2015 by the Illinois Appellate Court for the First District, albeit by a 3-judge panel different from the panel that decided Fifield.
In simplified form, the salient facts are as follows: Following his resignation from OAG, McInnis filed an action for a declaration that his agreement not to compete with OAG and not to solicit its customers was unenforceable under Fifield because he had remained employed “only” 18 months after his execution of the noncompete agreement. OAG counterclaimed to enforce the restrictions against McInnis, who had begun work at a competitor.
The trial court held that there was inadequate consideration for the noncompete agreement because (1) McInnis had not been given any additional consideration for the agreement (i.e., something beyond his hire and subsequent employment for only 18 months) and, therefore, (2) Fifield’s two-years-of-continued-employment rule controlled.
On appeal, the appellate court discussed Fifield and related cases at some length, concluding that Fifield doesnot mean that two years’ subsequent employment was the only consideration that would bind an employee to a restrictive covenant agreement. The court made clear its view, which it claimed also is the view of other Illinois appellate courts, that the Fifield rule comes in to play when there otherwise is no additional consideration given to the individual for agreeing to the post-employment restrictions. And in McInnis, the appellate court held that the trial court properly concluded that no additional consideration existed. Thus, it affirmed the denial of enforcement of the agreement.
The dissent attacked the majority’s acceptance of Fifield in the first place. The dissent would reject Fifield’s holding as it applies to new hires, and instead believes a totality of the circumstances test should be applied to the question of the adequacy of consideration. Alas, unless and until the Illinois Supreme Court addresses this issue, however, Fifield remains a significant obstacle to enforcement of noncompete agreements, at least where the employer has not provided distinct additional consideration beyond mere employment.
McInnis provides authority to argue that providing consideration separate and distinct from employment (and the salary and benefits that everyone in that position receives) — that is, consideration that the employee would not have been given had he refused to sign the non-compete agreement— makes Fifield inapplicable to any enforcement action.