In consideration (or lack thereof) - Employment agreements and post-employment restrictions in Illinois...the saga continues
In the last several years, the issue of what constitutes adequate consideration for a post-employment restrictive covenant has been the subject of much litigation in Illinois. A series of state court decisions have moved away from recognizing continued employment as sufficient consideration to a seemingly bright-line rule of two years of employment. Illinois federal district court decisions, on the other hand, take a more reasoned approach by actually delving into the adequacy of consideration other than mere employment.
Now, a recent decision by the Illinois First District Appellate Court, McInnis v. OAG Motorcycle Ventures, Inc., 2015 IL App (1st) 142644, (June 25, 2015) politely questions the bright-line standard of two years of employment for adequate consideration articulated in Fifield v. Premier Dealer Services, Inc. 2013 IL App (1st) 1203271. The McInnis decision, like some recent Illinois federal district court decisions, takes a more reasoned approach by actually delving into the adequacy of consideration beyond mere length of employment.
THE FACTS
In this new case, the plaintiff, McInnis, worked for defendant employer, OAG, from August 2009 until October 2012 with no post-employment restrictions. McInnis voluntarily left OAG to work for a competitor, but returned to OAG one day later seeking reinstatement. Fearful that McInnis might leave again, OAG asked McInnis to sign a confidentiality agreement which contained a post-employment restriction on competing for a period of 18 months in a radius of 25 miles and a customer non-solicitation clause. OAG also waived its usual 90-day trial period for new employees allowing McInnis immediate benefit eligibility. McInnis signed the agreement.
After 18 months, McInnis left OAG again to work for a competitor within a 25-mile radius. McInnis filed an action seeking to have the post-employment restrictions declared invalid due to a lack of consideration, citing the Fifield case. OAG counterclaimed seeking to enforce the restrictions. Denying OAG’s request for a preliminary injunction, the trial court found the post-employment restrictions invalid based upon a lack of consideration premised upon the two years of employment rule articulated in Fifield. The trial court noted that OAG’s waiver of the 90-day trial period was inconsequential because McInnis was already a proven employee based upon his prior work history stating:
OAG appealed arguing that the bright-line two year employment rule laid out in Fifield was not controlling and that the trial court failed to take into account other consideration that supported the restrictions. OAG also argued that Fifield “did not abolish a fact-specific approach to determining adequacy of consideration.”
The appellate court affirmed the denial of the preliminary injunction, but agreed with OAG’s central position that Fifield did not abolish a fact-specific approach taken by courts in determining the adequacy of consideration.
The court observed that “Fifield is equally important for what it says and for what it does not.” The court noted that the Fifield court had no occasion to consider any consideration beyond the three months of employment. The court stated that it did not read Fifield to overrule an earlier case that:
This case illustrates the tempering by some courts in the interpretation of Fifield. Until the Illinois Supreme Court speaks to the issue, McInnis gives hope to overcoming a challenge to the adequacy of consideration of post-employment restrictions when more than mere employment is the consideration.
THE TAKEAWAYS
So what steps can an employer take to overcome a challenge to the adequacy of consideration?
This is certainly not the end of the story for determining appropriate consideration for post-employment restrictions in Illinois. We will continue to keep you updated as the saga unfolds.
1 In Fifield, the employer sought to enforce a non-compete provision premised on continued employment as sufficient consideration. The appellate court, affirming the trial court, held that the employee’s three months employment time period was “far short of the two years required for adequate consideration under Illinois law.”
Now, a recent decision by the Illinois First District Appellate Court, McInnis v. OAG Motorcycle Ventures, Inc., 2015 IL App (1st) 142644, (June 25, 2015) politely questions the bright-line standard of two years of employment for adequate consideration articulated in Fifield v. Premier Dealer Services, Inc. 2013 IL App (1st) 1203271. The McInnis decision, like some recent Illinois federal district court decisions, takes a more reasoned approach by actually delving into the adequacy of consideration beyond mere length of employment.
THE FACTS
In this new case, the plaintiff, McInnis, worked for defendant employer, OAG, from August 2009 until October 2012 with no post-employment restrictions. McInnis voluntarily left OAG to work for a competitor, but returned to OAG one day later seeking reinstatement. Fearful that McInnis might leave again, OAG asked McInnis to sign a confidentiality agreement which contained a post-employment restriction on competing for a period of 18 months in a radius of 25 miles and a customer non-solicitation clause. OAG also waived its usual 90-day trial period for new employees allowing McInnis immediate benefit eligibility. McInnis signed the agreement.
After 18 months, McInnis left OAG again to work for a competitor within a 25-mile radius. McInnis filed an action seeking to have the post-employment restrictions declared invalid due to a lack of consideration, citing the Fifield case. OAG counterclaimed seeking to enforce the restrictions. Denying OAG’s request for a preliminary injunction, the trial court found the post-employment restrictions invalid based upon a lack of consideration premised upon the two years of employment rule articulated in Fifield. The trial court noted that OAG’s waiver of the 90-day trial period was inconsequential because McInnis was already a proven employee based upon his prior work history stating:
We’re going to lay down this pretty much guideline of two years. And unless you come up with some other newfangled consideration that can chip away at that and take it outside of that two year margin, then it’s not enforceable.
OAG appealed arguing that the bright-line two year employment rule laid out in Fifield was not controlling and that the trial court failed to take into account other consideration that supported the restrictions. OAG also argued that Fifield “did not abolish a fact-specific approach to determining adequacy of consideration.”
The appellate court affirmed the denial of the preliminary injunction, but agreed with OAG’s central position that Fifield did not abolish a fact-specific approach taken by courts in determining the adequacy of consideration.
The court observed that “Fifield is equally important for what it says and for what it does not.” The court noted that the Fifield court had no occasion to consider any consideration beyond the three months of employment. The court stated that it did not read Fifield to overrule an earlier case that:
… engaged in [a] fact-specific approach in determining consideration. What Fifield clearly holds is that employment alone, which is of less than two years duration, is inadequate consideration to support enforcement of a postemployment restrictive covenant.
This case illustrates the tempering by some courts in the interpretation of Fifield. Until the Illinois Supreme Court speaks to the issue, McInnis gives hope to overcoming a challenge to the adequacy of consideration of post-employment restrictions when more than mere employment is the consideration.
THE TAKEAWAYS
So what steps can an employer take to overcome a challenge to the adequacy of consideration?
- First and foremost, remember that courts tend to abhor restraints on trade and will always carefully scrutinize the facts to determine enforceability. In Illinois, employment alone is not sufficient consideration absent the employee remaining continuously employed for two years or more.
- Second, be specific in stating the consideration that supports the post-employment restrictions, i.e., ascribing a specific sum of money or granting additional vacation days that other employees who do not have a similar post-employment restriction are not entitled. Be aware that more creative non-monetary efforts to establish consideration will run the risk of a court finding insufficient consideration.
This is certainly not the end of the story for determining appropriate consideration for post-employment restrictions in Illinois. We will continue to keep you updated as the saga unfolds.
1 In Fifield, the employer sought to enforce a non-compete provision premised on continued employment as sufficient consideration. The appellate court, affirming the trial court, held that the employee’s three months employment time period was “far short of the two years required for adequate consideration under Illinois law.”
