non-compete clauses Archives - EMPLOYEE BENEFITS BLOG

Illinois Appellate Court Decision Requires More Than At-Will Employment As Consideration For Non-Compete Agreements

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.

French Employment Agreements Should Specifically Name Switzerland in Non-Compete Clauses

by Sébastien Le Coeur and Jilali Maazouz

If a French employer wants to prohibit an employee from working for a competitor in both the European Union and Switzerland, then the employer should specifically list both jurisdictions in the non-compete portions of an employment agreement. In employment agreements, France and many other jurisdictions limit enforcement of non-compete provisions to territories specifically named in the agreement. Some jurisdictions allow non-compete territories to include several countries, or even entire regions, provided it is necessary for the protection of the employer’s interests. Given these restrictions, because Switzerland is not part of the European Union, a French employer must specifically name Switzerland, and not just the European Union, as a region covered by the non-compete provisions in an employment agreement.

Unless the non-compete clauses specifically list Switzerland, the non-compete provisions will be virtually ineffective should the executive relocate there. In addition, if an employment agreement provides for post-termination compensation, an executive could receive severance from a prior employer while working for a competitor in Switzerland. Thus, all French employers should consider specifically listing Switzerland as a covered region in non-compete provisions in any new employment agreements and should also consider reviewing existing employment agreements to ensure Switzerland is specifically named as an included region in non-compete clauses.