In July 2013, we reported on the First District Appellate Court’s ruling in Fifield et al. v. Premier Dealer Services, Inc., in which the court upended Illinois law regarding what consideration is needed to create an enforceable post-employment non-compete agreement. Before Fifield, the conventional wisdom in Illinois was that, at least at the outset of employment, an employer need not offer an employee any additional consideration beyond at-will employment in exchange for a non-compete agreement. In Fifield, the Appellate Court rejected that reasoning, holding that at-will employment is valid consideration for a non-compete agreement only if the employee is actually employed for at least two years after signing the agreement. Under Fifield, if at-will employment is the only consideration offered in exchange for a non-compete agreement, the agreement will be rendered void if the employee’s employment ends for any reason before the two-year mark. (A full summary of the decision is available in our July 2013 alert.)
Many commentators have questioned Fifield’s reasoning, and there was some hope that the Illinois Supreme Court would step in and overturn the ruling. However, in late September, the Court denied Premier’s petition for leave to appeal. This leaves Fifield as governing law at least in the First District (which covers Cook County), and perhaps beyond.
In light of Fifield, employers who wish to enforce non-compete agreements under Illinois law should take the following steps:
Review non-compete agreements with current employees to determine whether employees received adequate consideration, under Fifield, to permit enforcement. Note that this review should not be limited to employees working in Illinois. For example, an agreement may specify that it is governed by Illinois law, even if the employee works in another state.
Consult with legal counsel to determine whether existing form agreements are adequate under the new law, and what if any changes may be needed to render the agreements enforceable. This could include expressly providing for additional consideration, or, if the employer does business in multiple states, specifying that the agreement will be governed by the law of another state.
Carefully consider what additional consideration to offer to employees in exchange for non-compete agreements, and what employee relations issues may arise from requiring current employees to sign new agreements as a condition of employment. While a cash signing bonus is the most obvious solution, any benefit – such as an award of additional vacation time, a stock award, a promise of severance pay, etc. may suffice. Because the law remains in flux, employers are strongly advised to consult with legal counsel to ensure that any consideration offered will be adequate to permit enforcement of the agreement.