Kreisman Law Offices Professional Corporation
Consideration is the essential ingredient for legally enforceable contracts. The same is true in at-will employment where an employee is required to sign a noncompetition agreement in order to keep his or her job. When the employee signs such a noncompete contract, the employer then promises a continued length of time of employment, which is similar to adequate consideration.
The question in this case, where Eric D. Fifield was a new employee of Enterprise Financial Group (EFG), what was sufficient consideration for length of his employment? The case turns on the “substantial period of time” of the length of employment promised by the employer.
In this case, the Illinois Appellate Court affirmed a declaratory judgment for Fifield and his new employer EFG in their lawsuit against Premier Dealer Services.
Before October 2009, Fifield was employed by Great American Insurance Co. Fifield was assigned to work exclusively for Premier Dealer Services (PDS), a subsidiary of Great American. PDS was an insurance administrator that marketed financial and insurance products to the automotive industry.
In October 2009, Great American sold PDS to Premier, which was engaged in the business of developing, marketing and administering a variety of vehicle after-market products and programs.
As a result of that sale, Fifield’s employment was to end on Oct. 31, 2009. But late in October of the same year, Premier made an offer of employment to Fifield. As a condition of Fifield’s employment, Premier required him to sign an “Employee Confidentiality and Inventions Agreement,” which included nonsolicitation and noncompetition provisions.
As part of the agreement, it was stated that the nonsolicitation and noncompetition provisions would fall if Fifield was fired without cause during the first year of his employment. Fifield and Premier agreed to the employment and Fifield began working as of Nov. 1, 2009.
On Feb. 1, 2010, Fifield informed Premier that he was resigning and that his employment would end in 2 weeks. Shortly thereafter, Fifield began working for EFG.
In order for a restrictive covenant to be valid and enforceable, the terms of the covenant must be reasonable. In making a determination as to whether or not the restrictive covenant is reasonable, the court must make two determinations: (1) whether the restrictive covenant is ancillary to a valid contract; and (2) whether the restrictive covenant is supported by adequate consideration. Lawrence & Allen v. Cambridge Human Resource Group, 292 Ill. App.3d 131 (1997).
The issue in this case was whether or not the consideration was adequate. Illinois courts have analyzed the adequacy of consideration in view of what the post-employment restrictive covenants are. Generally, Illinois has held that continued employment for 2 years or more constitutes adequate consideration. The restrictive covenant would not be enforced unless there was adequate consideration given. Brown & Brown v. Mudron, 379 Ill. App.3d 724 (2008).
In the Brown case, the defendant worked as a customer service representative for her employer. While employed, the employer was purchased by the plaintiff. As part of that purchase agreement, the plaintiff required the defendant to sign an employment agreement which contained a post-employment restrictive covenant prohibiting the defendant from soliciting or servicing any of the plaintiff’s customers. The restriction was to last 2 years after the end of employment with the plaintiff.
In the Brown case, the defendant signed the employment agreement and seven months later resigned and began working for one of plaintiff’s competitors. The plaintiff filed a breach of contract claim against defendant alleging that she breached the employment agreement by soliciting and servicing the plaintiff’s customers. The defendant filed a motion for summary judgment which was granted. It was held on appeal in the Brown case that there was not adequate consideration to support the restrictive covenants in the employment agreement. It was held that seven months of continued employment was not sufficient consideration under Illinois law to support a restrictive covenant.
In this case, Premier argued that the holding in Brown was not applicable. Unlike Brown, Fifield was not employed by Premier when he signed the agreement. Premier argued that Fifield employment was the consideration received in exchange for the noncompetition provisions. The appellate court disagreed. Illinois courts have repeatedly held that there must be at least 2 years or more of continued employment to constitute adequate consideration in support of a restricted covenant. Diedrich Insurance v. Smith, 2011 IL App.(5th) 100048.
Fifield resigned from Premier after being employed for slightly longer than 3 months. This is way short of 2 years and thus consideration was lacking under Illinois law.
Fifield v. Premier Dealer Services, 2013 IL App. (1st) 120327 (June 24, 2013).
Kreisman Law Offices has been handling business disputes and business litigation matters for more than 37 years, in and around Chicago, Cook County and its surrounding areas, including Naperville, Wheaton, Winfield, Westchester, Warrenville, Stickney, Tinley Park, Chicago (Canaryville), Chicago (Lincoln Park), Mundelein, Vernon Hills and Waukegan, Ill.
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