Recent decisions from the U.S. District Court for the Northern District of Illinois and the Illinois Appellate Court for the Third District (consisting of Bureau, Fulton, Grundy, Hancock, Henderson, Henry, Iroquois, Kankakee, Knox, LaSalle, Marshall, McDonough, Mercer, Peoria, Putnam, Rock Island, Stark, Tazewell, Warren, Whiteside and Will counties) demonstrate the varying views on what constitutes adequate consideration to support a covenant not to compete under Illinois law.
In Prairie Rheumatology Assocs., S.C. v. Francis, 2014 IL App (3d) 140338 (Ill. App. Ct. 3d Dist. 2014), the Third District held that there was not adequate consideration to support the covenant not to compete at issue where a physician had been employed for only 19 months and voluntarily terminated her employment. However, it is unclear whether the court adopted a bright-line rule that two years’ employment is always required for there to be adequate consideration to support a covenant not to compete. Rather, the court cited to “the general 2-year rule of thumb that supports adequate consideration.”
This ruling came on the heels of a holding in the Illinois Appellate Court for the First District (consisting of Cook County) in Fifield v. Premier Dealer Servs., Inc., 993 N.E.2d 938 (Ill. App. Ct. 1st Dist. 2013). In that case, the Illinois appellate court held that two years’ employment was required for there to be sufficient consideration to support the enforceability of a covenant not to compete. Following Fifield, there was some belief that Illinois courts would apply a bright-line test that two years’ employment was required as consideration to support a covenant not to compete.
In Montel Aetnastak, Inc. v. Miessen, No 13 C 3801, 2014 U.S. Dist. LEXIS 11889 (N.D. Ill. Jan. 28, 2014), however, Judge Ruben Castillo determined that an employee who worked for the plaintiffs for 15 months and then voluntarily resigned received sufficient consideration to support the enforceability of the covenant not to compete that was at issue in the case. Under Illinois law, a “substantial period” of employment is necessary to adequately support a covenant not to compete.
In Montel, Judge Castillo reviewed Illinois law and determined that there were contradictory holdings with respect to the length of employment that courts had found to be sufficient to constitute a “substantial period” of employment to serve as consideration for a covenant not to compete. Specifically, Judge Castillo held that, because there were contradictory holdings of the lower Illinois courts and there was a lack of a clear direction from the Illinois Supreme Court, it was inappropriate to apply a bright-line rule that two years’ employment was required in order for there to be adequate consideration to support a covenant not to compete. Judge Castillo held that the employee in Montel had been employed for a “substantial period” based on the facts that the employee had worked for the plaintiff for 15 months and had voluntarily resigned. Therefore, Judge Castillo held that there was adequate consideration to support the covenant not to compete at issue. Judge Castillo’s ruling in Montel casts doubt on whether Illinois courts will apply a bright-line test to determine whether there is sufficient consideration to support covenants not to compete.
However, in another decision from the United States District Court for the Northern District of Illinois, Judge James Holderman considered the Montel opinion, but ultimately “predict[ed] the Illinois Supreme Court upon addressing the issue would not alter the doctrine established by the recent Illinois appellate opinions, which clearly define a ‘substantial period’ as two years or more of continued employment.” Instant Tech., LLC v. DeFazio, No. 12 C 491, 2014 WL 1759184, at *14 (N.D. Ill. May 2, 2014).
On the issue of whether continued employment is adequate consideration to support a covenant not to compete, it is likely that courts in the First and Third Districts of Illinois will view having at least two years of employment as being significant in order to use such employment as consideration. Until the Illinois Supreme Court weighs in on this issue, however, some uncertainty will still exist. Therefore, it is important for employers to also rely upon other forms of consideration in support of a covenant not to compete, such as providing access to customers, patients, referral sources, supply relationships and trade secrets.