In Illinois, a post-employment restrictive covenant which prohibits a former employee from competing or soliciting customers must satisfy three requirements: (1) it must be ancillary to a valid contract or relationship; (2) the length of time the restriction applies must be reasonable, as must the provision’s geographical reach and the limitations placed on potential employment opportunities; and, (3) it must be supported by adequate consideration.
Generally, consideration is defined as “a bargained-for exchange” in which both parties give something, in exchange for something. In the past, consideration for restrictive covenants executed prior to the start of employment was considered to be supplied by the offer of employment. With regard to restrictive covenants executed after the start of employment, courts have required employment for a “substantial period” (generally two (2) years) in order for continued employment to constitute adequate consideration.
In a recent Appellate Court case, Fifield v. Enterprise Financial Group, Inc. (2013 IL App (1st) 120327), the court held that even a covenant executed prior to employment was not supported by consideration by virtue of employment until the employee had been employed for two years. The court also found that whether an employee voluntarily resigned did not impact this analysis. The Illinois Supreme Court refused to review the case on appeal and thus, the Fifield decision stands as precedent in Illinois.
Based on the Fifield decision, when executing an agreement containing a restrictive covenant, employers should offer consideration in some form other than continued employment to both new hires and current employees. For example, consideration will likely be deemed adequate if the employer provides the employee with a bonus, a pay increase, stock options, and/or enhanced employee benefits, etc. Employers who do not offer this kind of additional consideration risk having their restrictive covenants declared unenforceable if the employee leaves his or her job for any reason after less than two years of employment. Employers are encouraged to review their existing employment agreements with restrictive covenants and consult with legal counsel to ensure any current or future restrictive covenant complies with Illinois’ now heightened consideration requirements and best suits the needs of the employer.
Al Mezny is a member of the Board of Directors of the Firm who provides efficient counsel concerning your employment and information issues based on his 25 years of legal experience and his practical experience running his own business.