Illinois Appellate Court Ruling Makes It More Difficult For Employers to Enforce Non-Solicitation Agreements

In March 2008, the Third Circuit Appellate Court in Illinois ruled that an employment agreement, which restricted the ability of the employee to solicit customers of the employer post-employment, was not enforceable due to a lack of adequate consideration even though it was signed at the time the employee was hired by the employer.

Brown and Brown purchased the John Manner Insurance Agency (JMI) in 2002. The previous JMI employees hired by Brown and Brown were required to sign a non-solicitation agreement in exchange for employment with Brown and Brown. The agreement prohibited employees from soliciting, diverting, accepting or servicing Brown and Brown customers for a two-year period following termination. The offers of employment the employees received were not for a fixed term and were employment-at-will relationships. At least one employee, who refused to sign the agreement, was terminated. Another employee, Diane Gunderson, signed an agreement and began working as a Brown and Brown employee. Seven months later, Ms. Gunderson voluntarily chose to resign. When Brown and Brown brought suit against Ms. Gunderson for violating the restrictive covenant in her employment agreement, it lost on summary judgment. On appeal, the Third Circuit agreed with the trial court's decision.

The agreement at issue stated that Florida law would apply because Brown and Brown was a Florida corporation. However, the Illinois Appellate Court applied Illinois law instead. Although it indicated it would follow Illinois law, the Appellate Court then went on to disregard precedential case law from the Illinois Supreme Court and held that continued employment was not adequate consideration to enforce a contract restricting an employee's post-employment activity. It also found the fact that Ms. Gunderson resigned and was not involuntarily terminated irrelevant. The effect of the Court's decision was noted in the dissenting opinion: "To hold, as the majority does here, that an employee can void the consideration for any restrictive covenant by simply quitting for any reason renders all restrictive employment covenants illusory in this state. They would all be voidable at the whim of the employee." The dissent was alluding to the fact that based upon the decision of the Court, an employee could evade the enforceability of a restrictive covenant, which was voluntarily entered into at the time an offer of employment was accepted, by simply quitting prior to working for the employer for a "substantial" period of time.

In short, Illinois employers entering into non-compete or non-solicitation agreements with their employees should consider offering additional consideration to increase the enforceability of the agreements. While this has always been advisable when inducing an existing employee to enter into a restrictive covenant, it is now also advisable for employers to reevaluate how they enter into restrictive covenant agreements with new hires.

Questions? For questions or comments concerning this topic, please contact Attorney Rebecca Dobbs in our St. Charles office at (630) 377-1554, or redobbs@stch.w-p.com.