Chief Federal District Judge In Chicago Declines To Follow Illinois Appellate Court Holding That, Absent Other Consideration, Two Years Of Employment Is Required Consideration For A Restrictive Covenant
Judge Ruben Castillo, the Chief Judge for the United States District Court for the Northern District of Illinois, recently declined to follow a widely publicized Illinois Appellate Court decision in which the Appellate Court held that, absent other consideration, two years of employment is required consideration for a restrictive covenant in Illinois.
In the summer of 2013, long held beliefs about the required consideration for a restrictive covenant under Illinois law were thrown a curve when the Illinois Appellate Court for the First District (i.e., Cook County) held that, absent other consideration, two years of employment is required for a restrictive covenant to be deemed supported by adequate consideration—even where the employee signed the restrictive covenant as a condition to his employment offer and even where the employee voluntarily resigned. Fifield v. Premier Dealer Services, Inc., 373 Ill. Dec. 379, 993 N.E. 2d 938 (Ill.App. 1 Dist. June 24, 2013). To our knowledge, Fifield is the only Illinois state court decision to hold that an offer of employment by itself is insufficient consideration for a restrictive covenant; neither the Illinois Supreme Court nor any other Illinois appellate district has so held.
Fifield generated significant discussion among practitioners, as well as some expectation that the Illinois Supreme Court would weigh in. However, in September 2013, the Illinois Supreme Court decided not to review Fifield.
The First Post-Fifield Decision
Earlier this year, Judge Castillo issued the first and only published decision to date to address Fifield. In that decision, Judge Castillo specifically declined to follow Fifield. Montel Aetnastak, Inc. and Montel Inc. v. Kristine Miessen et al., No 13 C 3801, 2014 U.S. Dist. LEXIS 11889 (N.D. Ill. Jan. 28, 2014).
Montel involved an individual who had voluntarily resigned 15 months after signing a non-compete. When her employer brought suit to enforce her non-compete, she argued, among other things, that because she was only employed for 15 months after signing the non-compete, it was not supported by sufficient consideration and was therefore unenforceable.
While acknowledging Fifield’s holding, Judge Castillo found that “Illinois law does not . . . provide a clear rule to apply in this instance.” In support of this conclusion, Judge Castillo cited several Illinois appellate decisions regarding the adequacy of consideration for a non-compete, including a decision in which “employment for a year was considered a ‘substantial period’ of employment,” a decision in which the court noted that “factors other than the time period of the continued employment . . . may need to be considered,” and a decision in which the court “considered the raises and bonuses received by the defendants, their voluntary resignation, and the increased responsibilities they received after signing a restrictive covenant.”
Ultimately, Judge Castillo held that “[g]iven the contradictory holdings of the lower Illinois courts and the lack of a clear direction from the Illinois Supreme Court, this Court does not find it appropriate to apply a bright line rule” regarding what constitutes sufficient consideration for a non-compete. Instead, Judge Castillo chose to employ “the fact-specific approach employed by some Illinois courts.” In so doing, he found that the defendant’s 15 months of employment after she signed the non-compete, plus the fact that she had voluntarily resigned, were sufficient to conclude that “she was provided with a ‘substantial period’ of employment.” Judge Castillo therefore held that the defendant “was provided adequate consideration to support the enforceability of the employment agreement.”
To date, no published decision has cited or discussed Montel.
A developing split within the Illinois Appellate Court?
More recently, the Illinois Appellate Court for the Second District (i.e., a different appellate district than the one which issued Fifield) issued an unpublished decision involving the enforceability of a non-compete agreement signed by an employee who resigned 19 months after signing it. Critical Care Systems, Inc. v. Dennis Heuer and IV Solutions, LLC, No. 2-13-0745, 2014 Ill.App. Unpub. LEXIS 283 (Ill. App. 2d Dist. Feb. 18, 2014). Even though the decision focused on whether the non-compete was enforceable (the Court held that it was not), the decision does not discuss the fact that the employee was only employed for 19 months after signing the non-compete, nor does it even mention Fifield. Given that Fifield could have provided a ready-made alternative basis for the Court’s holding, the silence on this issue is potentially notable given the publicity received by Fifield over the past nine months. (On the other hand, judicial “tea reading” is a dangerous art; there are many reasons why the Court may not have touched upon this issue.)
The only sure takeaway from these developments is that there are more to come on this issue. Stay tuned.