As of January 1, 2022, a new Illinois law governing restrictive covenants (Public Act 102-0358) is in effect. This law outlines the requirements for valid noncompetition and nonsolicitation agreements, and enforcement of those covenants. It applies to all agreements entered into on or after January 1.
Employees gathering with friends, expressing their political views and posting about these things on social media have created for employers an increasingly urgent question: When the people engaging in unsafe or politically charged behavior are your employees, and the conduct happens off the clock, is it appropriate or even possible to discipline them?
US businesses expanding abroad, and international businesses moving into the United States, can find the differences between employment laws both unexpected and costly.
Companies of all sizes are eager to expand their businesses, and their workforce, into new markets. US employers already know that operating in multiple states can feel like operating in different countries because of state- and locality-specific employment laws. But if operating in California versus Wyoming is comparing pools to puddles, then operating in the United States versus other countries is comparing puddles to oceans.
US-based companies looking to expand abroad, and foreign companies opening their first US locations, must proceed with caution before jumping in. One error can commit a business to employing its workforce until retirement, cost months and a small fortune to terminate the employment relationship, or keep it embroiled for years in class action litigation.
On June 24, 2013, the Appellate Court of Illinois (First District) issued a decision in Fifield v. Premier Dealer Servs., 2013 IL App (1st) 120327, that will make it more difficult for Illinois employers to enforce post-employment non-compete agreements against newly hired employees who are employed for less than two years and leave, for whatever reason, and join a competitor. The issue in Fifield was whether the promise of at-will employment to a new employee, without more, constitutes consideration adequate to support post-employment restrictive covenants. Fifield lost his job after his employer was acquired but was subsequently offered employment with the successor company. As a condition to his employment with the successor company, Fifield signed a two-year post-employment non-compete agreement. The agreement contained a carve-out allowing Fifield to work for a competitor if he was fired without cause within the first year of employment. Three months later, Fifield resigned and joined a competitor. He and his new employer obtained a declaratory judgment that Fifield’s non-compete agreement was not enforceable because Fifield had not received adequate consideration. The Illinois Appellate Court upheld that decision.
Illinois Courts have long since held that the promise of continued “at-will” employment may not be sufficient consideration to support a non-compete agreement signed by a current employee, due to the illusory nature of the promise. In particular, many Illinois Courts have held that if the employee remains employed for less than two years, the non-compete may not be valid unless it is supported by other consideration. The Fifield Court applied that rule to circumstances where a new employee is required to sign a non-compete agreement as a condition of employment.
Unless the Fifield decision is narrowed or reversed, employers in Illinois should evaluate whether they need a post-employment restrictive covenant from a new-hire and, if so, offer additional consideration beyond the job. Employers should also consider the need for post-employment restrictive covenants when making acquisition strategy decisions and calculating acquisition costs. In the deal context, it is common for employees to be terminated by the seller before the deal closes and hired by the buyer after the deal closes. In light of Fifield, buyers should carefully consider which of the seller’s employees have trade secrets or other information such that it is important to restrict that employee from working for a competitor. If that is the case, the buyer should consider offering a fixed-term employment agreement or other consideration such as a signing bonus to avoid the result in Fifield. Alternatively, the buyer may consider structuring the deal so that key employees of the seller are bound by non-compete agreements with the seller that are transferred upon the closing of the transaction.
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