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2 Years Employment Required to Enforce Non-Competition Agreement


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By Mary Leigh Pirtle

Non-competition and non-solicitation agreement
An employee for an insurance administration company marketing finance and insurance products to the automotive industry was required to sign a two year non-competition and non-solicitation agreement at the outset of his at-will employment, as a condition of his employment.  The employee resigned less than four months later and began working for a competitor.  The administration company filed suit against the employee and his new employer, seeking to enforce the non-competition and non-solicitation provisions in the employee’s employment agreement.  The administration company argued the mere hiring of the at-will employee was sufficient consideration to make the restrictive agreement enforceable because the employee was able to avoid unemployment by accepting the company’s offer.  Further the administration company attempted to distinguish the non-solicitation and non-competition provisions as restrictive covenants rather than postemployment restrictive covenants because the agreement was signed at the outset of employment.

Adequate consideration required
The court was not persuaded by either of the administration company’s arguments.  Namely, the court determined whether the non-solicitation and non-competition provisions were agreed to at the outset of employment or at its termination was of no consequence because courts have consistently treated restrictive covenants signed at the outset of employment as postemployment restrictive covenants.  Additionally, the provisions in question were not operational until the employment was terminated, further supporting the fact they were postemployment in nature.

As to the issue of consideration to make the restrictive agreement enforceable, the court recognized other courts have consistently required two years of employment to maintain adequate consideration, regardless of whether the employee is terminated or resigns.  Here, the employee’s employment of less than four months fell significantly below this threshold.  Because the employee worked for less than two years, he was free to work for the employer’s competitor.

In reaching its holding, the court determined an at-will employee must be continually employed for at least two years to constitute adequate consideration in support of a restrictive covenant such as a non-competition or non-solicitation agreement.  This holding is a departure from the more ambiguous standard previously used by courts. Prior to this case, courts were generally in agreement two or more years of continued at-will employment would likely be sufficient consideration to make these provisions enforceable, whereas less than one year of continued at-will employment would likely be insufficient.  However, no court had established whether more than one year but less than two years would support a restrictive covenant.  The court here cleared up this ambiguity and established a bright-line rule of at least two years uninterrupted employment for a non-competition or non-solicitation agreement to be enforceable.  

Under this bright-line rule, it will be increasingly difficult for employers to enforce non-solicitation and non-competition agreements for any employee who was employed less than two years prior to entering into the agreement.  While, this case did not outline any additional arguments the employer could have made to evidence sufficient consideration under Illinois law, employers would be wise to consider offering employees additional consideration at the outset of employment, such as signing bonuses or stock options, as well as advancing any arguments the employee received additional consideration through access to confidential information or significant customer contacts.

 

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