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Illinois Makes it Tougher on Employers to Enforce Non-Compete Agreements
On June 24, 2013, the Illinois Appellate Court (First District) rendered a decision in the case of Fifield v. Premier Dealer Services, Inc. The decision is bad for employers, as it materially tightens Illinois law relating to the enforceability of non-compete and non-solicitation agreements.
The court held that newly hired, at-will employees who sign non-compete agreements must be employed for a minimum of two years before the non-compete becomes enforceable, unless the employer gives the new employee some additional form of compensation for the agreement (i.e., cash payment at signing, bonuses or raises).
In practice, this means that, until a new employee reaches the second anniversary of his employment, an employer cannot stop the employee from going to work for a competitor – even if the employee signed a non-compete agreement when hired. Moreover, the rule applies whether the employee is terminated or resigns.
Before the Fifield decision, Illinois courts held only that existing employees had to be employed for at least two years before an employer could require them to sign a non-compete agreement. The reasoning is that continued employment alone does not constitute adequate consideration for a non-compete unless the continued employment was for longer than than two years (absent some additional type of compensation like a bonus or promotion). There is now no difference between newly hired and existing employees when it comes to the two year requirement for enforcing non-compete and non-solicitation agreements in Illinois.
In light of the Fifield decision, employers may wish to review and reassess the terms of their non-compete and non-solicitation agreements, and to consider implementing a policy for payment of consideration to any new or existing employee asked to sign such an agreement.
Contact SWB to discuss minimizing the impact of this new law on your business.
