Employers Beware: Employment Contracts - New Rules on Restrictive Covenants in Illinois

May 12, 2014
Thomas Scherschel
SmithAmundsen Financial Services Alert

In Fifield v. Premier Dealer Services, the Illinois appellate court held that the offering of a job will no longer be considered adequate consideration to support restrictive covenants, unless the job lasts typically, at least two years. Further, it does not matter if it is the employee who voluntarily leaves the company in less than two years. In fact, a savvy employee who wants to go to work for a competitor might intentionally leave his current employer before he has been employed for two years or more, just to avoid the restrictive covenants.

This is a major change in the law. Previously, the usual restrictive covenant dispute would center on the questions of the reasonableness of the restrictive covenants; the duration of time the employee was restricted from working for the competition; and the geographical limits of the area in which the employee was to be restricted. Now, after Fifield, those questions do not even come into play unless the employee has been employed for at least two years. After two years, the parties would again have to address the reasonableness of the restrictions in terms of length of the restriction and geographic area covered by the restriction. When either of those two elements is deemed unreasonable, the court can consider the restrictions to be, in essence, a restraint on trade.

What’s the bottom line? Knowing that restrictive covenants are under fire, and more so than ever before in Illinois, an employer should be cautious about allowing an employee who has been on the job for less than two years to be around sensitive customer lists or other proprietary information. If the employee leaves within two years, he can take much of what he has learned about the business and the marketplace with him. Alternatively, the employer can specifically set out in the employment agreement separate consideration for the restrictive covenants and confidentiality clauses, something other than mere employment. The employer might consider a modest signing bonus for employees who are willing to accept restrictive covenants. The employer could also offer other types of non-monetary consideration, such as additional vacation days during the first two years of employment. At that point, you will be able to show consideration and, at least for now, the employer will not be subject to the new rule of Fifield.