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Illinois Appellate Court Changes the Rules on Non-Competition Agreements: Are Your Agreements in Compliance?

Just when you thought it was safe to enforce those restrictive covenant agreements, the Illinois Appellate Court, 1 st District, throws a change-up. The Illinois Court of Appeals recently ruled that (under certain circumstances) when an employee is hired and signs a restrictive covenant agreement, the employee must be employed for 2 years, in order for the agreement to have sufficient consideration.

The Illinois Appellate Court issued the opinion in Fifield v. Premier Dealer Servs.,which determined that because the individual was not employed for 2 years after executing the non-compete agreement, the agreement was invalid because it lacked consideration-even though the individual signed the agreement at the time of hire. But it is important to understand that Premier purchased the company that the individual was working for, prior to executing the agreement, which may have been the deciding factor for the court's decision.

As with all agreements, the parties must provide consideration to be valid. In this instance, the court relied on continued employment to determine if proper consideration was provided. Typically, the consideration is provided when the individual accepts the position, because they are receiving wages, benefits, vacation time, etc. as consideration for signing the agreement. But (according to this court) when a company provides a non-compete agreement after the employee has been working there, the individual's continued employment must be continuous for over 2 years in order to have sufficient consideration. But remarkably the Illinois Appellate Court decided to apply the consideration of continued employment to a situation where the individual signed the agreement at the beginning of his employment with Premier.

This means that Illinois employers with non-competition or non-solicitation agreements currently in place should discuss with their counsel as to whether or not those agreements are still viable, based on this new decision.

Questions? Contact Sean F. Darke in the Chicago office at sedarke@wesselssherman.com or by phone at (312) 629-9300. 

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