Since a decision by an Illinois Appellate court in 2013 (which the Illinois Supreme Court declined to review) held that to support a non-compete agreement the employee must work for at least two years it has been a hotly debated issue. We discussed Fifield and a related case last January. Two recent non-compete decisions highlight the growing divide on this issue. One comes from the Northern District of Illinois Federal Court and the other from Pennsylvania.
Illinois District Court Refuses to Follow Illinois Appellate Court
In his opinion on a motion to dismiss, Judge Dow of the Northern District of Illinois flatly rejected the Illinois Appellate Court ruling in Fifield. He stated: “Illinois law does not require a strict application of the two-year rule in assessing the enforceability of a non-solicitation clause (or any similar restrictive covenant).”
While state courts are the final arbiter of state law, the Fifield decision, being one from an appellate court and not the Illinois Supreme Court is not yet finally determinative of the issue in Illinois. Judge Dow’s decision is one of at least four decisions in the Northern District of Illinois that addressed and rejected the bright-line rule.
The Pennsylvania Supreme Court Holds That Continued Employment is Not Adequate
The Pennsylvania Supreme Court in Socko v. Mid-Atlantic Systems of CPA, Inc., addressed this question on November 15, 2015 and came to a dramatically different conclusion. After discussing the basic requirements of a restrictive covenant, the Court held that:
[w]hen a non-competition clause is required after an employee has commenced his or her employment, it is enforceable only if the employee receives “new” and valuable consideration — that is, some corresponding benefit or a favorable change in employment status.
More specifically, the mere continuation of the employment relationship at the time of entering into the restrictive covenant is insufficient to serve as consideration for the new covenant, despite it being an at-will relationship terminable by either party.
Thus, the employee must receive some benefit in addition to continued employment. The Court provided a list of things which might constitute that benefit: promotion, a change from part-time to full-time, change in compensation packaging (including bonuses), change in insurance benefits, and severance benefits. This may not apply if the non-compete is included in the initial employment agreement.
Key Takeaways
- In Illinois there continues to be significant disagreement whether continued employment of less than two-years is a sufficient benefit to support a non-compete. For the moment, the Northern District of Illinois Federal judges seem inclined to agree that less than two years of continued employment may still be a sufficient benefit. While at least two Illinois appellate courts have indicated that a minimum of two years continued employment is necessary, the Illinois Supreme Court has yet to resolve that question beyond letting the appellate courts’ rulings stand.
- Employees who signed a non-compete agreement after starting a job without receiving anything of value in exchange for signing the restrictive covenant, should discuss with an Employment Lawyer whether it may be voided for lack of consideration.
- Employers should offer something (really anything) in return for a new non-compete.
If you have signed a non-compete or are concerned about whether a non-compete is valid you should consider having it reviewed by one of the Chicago Non-Compete attorneys at Maduff & Maduff. Contact us for any of your legal concerns today.