Restrictive Covenants…Did You Really Consider the Consideration?
- Created: Tuesday, 21 November 2017 11:49
"Restrictive Covenants…Did You Really Consider the Consideration?" By Sandra Tatoian
In the employment practice, you often hear, “Illinois law does not favor restrictive covenants.” The reasoning is that restrictive covenants prohibit employees from taking specific actions either during the term of the employment, after employment ends or even both periods of time. The three common restrictive covenants are:
1. non-competition agreements: employee cannot compete with his/her employer for a specific period of time within a specific geographical area;
2. non-solicitation agreements: employee cannot hire employees of employer and/or perform services for customers of his/her employer; and
3. non-disclosure agreements: employee cannot disclose business secrets, trade secrets, proprietary processes or other specified information employer deems confidential.
Nevertheless, Illinois courts will enforce a restrictive covenant so long as the restraints are reasonable. But, before a court even considers whether a restrictive covenant is reasonable, it must first determine if the restrictive covenant was supported by adequate consideration. Consideration is something of value given in exchange for a promise.
So….what is adequate consideration? Unfortunately for now, Illinois courts cannot agree on an answer and are trying to predict how the Illinois Supreme Court will answer the question. Some Illinois courts have applied a “bright line” rule while others have applied a fact-specific, case-by-case approach.
For instance in Fifeld v. Premier Dealer Servs., 2013 IL App (1st) 120327, 993 N.E.2d 938, the First District of Illinois rejected the idea that employment itself, whether it is new employment or a continuation of employment, could serve as consideration for a restrictive covenant. The Fifeld court adopted the “bright line” rule and determined that there must be at least two years of continued employment to constitute adequate consideration for a restrictive covenant.
Four of the five federal courts in the Northern District of Illinois have rejected the “bright line” approach in favor of a more fact-specific approach. The court in Allied Waste Servs. of N. Am., LLC v. Tibble, 177 F. Supp. 3d 1103, 1108 (N.D. Ill. 2016) believes the Illinois Supreme Court will ultimately decide the issue by applying a case-by-case approach, considering the totality of the circumstances.
So…is the restrictive covenant in your employment agreement enforceable? Maybe. But, with careful wording and strategic planning, you may be able to avoid the issue altogether.
If you need an experienced attorney to review your employment agreement, please contact one or our attorneys at Mathis, Marifian & Richter, Ltd. located in Edwardsville, Belleville and Nashville, Illinois as well as St. Louis, Missouri.
Sandra Tatoian is a shareholder at Mathis, Marifian & Richter and practices primarily from the Edwardsville, Illinois office. She focuses her legal practice in civil litigation, real estate law and commercial litigation. To speak with Sandy, call 618-656-2244.
Professional Services Disclaimer: Please note that the information presented here is as an educational service, and while it contains information about legal issues, it is not legal advice. No warranty is made regarding the applicability of the information presented to a particular client situation, and the information set forth is not a substitute for original legal research, analysis and drafting for a particular client situation.