The Illinois Court of Appeals recently answered this question in its opinion, Fifield and Enterprise Financial Group, Inc. v. Premier Dealer Services, Inc., 2013 IL App. (1st) 120327 (June 24, 2013), regarding how long an employee must be employed as an at-will employee if he/she executes a restrictive covenant after beginning employment in order for the covenant to be enforceable. The answer - two years.
In this case, Mr. Fifield worked for a subsidiary of Great American Insurance Company, Premier Dealership Services (PDS). PDS was an insurance administrator that marketed finance and insurance products to the automotive industry. In October 2009, Great American sold PDS to Premier Dealer Services, Inc. (Premier). As a result of the sale, Mr. Fifield was originally informed by Great American that he would lose his job, effective October 31, 2009.
However, Premier (the purchaser) offered Mr. Fifield a job and as a condition of employment had him sign a restrictive covenant which included non-competition and non-solicitation clauses. Mr. Fifield signed the covenant and began work for Premier on November 1, 2009. Mr. Fifield subsequently voluntarily resigned only three months later on February 12, 2010 to take a position with Enterprise Financial Group, a competitor of Premier's. Litigation over the enforceability of Mr. Fifield's restrictive covenant ensued.
The trial court and then the appellate court denied Premier's request for injunctive relief and held the covenant unenforceable for lack of adequate consideration. In particular, the court was not persuaded by Premier's argument that Mr. Fifield had signed the agreement before he began work for them because he was effectively out of a job when Great American sold PDS to Premier. The court went on to state that at least two years of at-will employment is necessary to enforce a restrictive covenant after employment begins relying principally upon the holding in Lifetec, Inc. v. Edwards, 377 Ill. App. 3d 260, 263 (2007) (On or before April 1, 1996 defendant [employee] was offered employment and accepted the offer. On April 2, 1996, the defendant signed an employment agreement containing non-solicitation and non-competition provisions which the appellate court considered as post-employment restrictive covenants).
This case highlights several points. First, know your jurisdiction. States differ widely on whether continued at-will employment constitutes sufficient consideration to enforce a restrictive covenant, and then, if it does, just how long the employee must be employed to satisfy such consideration.
Second, when you are considering selling your business and "key employees" are necessary assets to bring value to the transaction, make sure you consult counsel to ensure that the restrictive covenants you are relying upon are valid and enforceable.
In sum, restrictive covenant law is an area that differs rather dramatically from state to state. An ounce of prevention in consulting with your counsel will go a long way in making sure your organization is in the best position to enforce a restrictive covenant if necessary.