Consideration for Noncompetes in Illinois – Another Rejection of Fifield

Wikimedia Commons

On March 10, in  R.J. O’Brien & Assoc., LLC v. Williamson, another United States District Court judge in Illinois (Judge Robert Gettleman) weighed in on the controversial Fifield v. Premier Dealer Services, Inc., 993 N.E.2d 938 (Ill. App. Ct. 2013). Fifield (which the Illinois Supreme Court refused to accept on appeal), you may recall, is the Appellate Court of Illinois for the First District, First Division decision that held that, if a new job (i.e., employment) is the purported consideration for a restrictive covenant, the employment must last at least two years to suffice – even if the employee terminates the employment.

Given its potentially-enormous consequences for the enforceability of noncompete agreements in Illinois, the decision has received tremendous attention.

Judge Gettleman summarized the state of the law following the Fifield decision as follows:

[S]ome Illinois courts have adopted a two year bright line rule. [Fifield v. Premier Dealer Servs., Inc., 993 N.E.2d 938, 943 (Ill.App. Ct. 2013)]; Prairie Rheumatology Assoc., 24 N.E.3d 58, 62 (Ill. App. Court 2014).

Other courts, however, have rejected the two year bright line rule in favor of considering other factors in determining whether sufficient consideration was given to enforce a restrictive covenant. Such factors include compensation (including raises and bonuses) and the terms of the employee’s termination. See Montel Aetnastak, Inc. v. Missen, 998 F.Supp.2d 694, 716 (N.D. Ill. 2014); Bankers Life, 2015 WL 515965 at *3; LKQ Corp. v. Thrasher, 785 F.Supp.2d 737, 742-44 (N.D. Ill. 2011).

The Illinois Supreme Court has not reached the issue. Four federal courts in the Northern District of Illinois have reached the issue, predicting how the Illinois Supreme Court would rule. Judge Holderman predicted and adopted the two year bright line rule. Instant Technology, LLC v. DeFazio, 40 F.Supp.3d 989, 1010 (N.D. Ill. 2014). Judges Castillo, Dow, and Shah have rejected the bright line approach and instead employed the fact-specific approach. Montel Aetnastak, 998 F.Supp.2d at 716; Traffic Tech, Inc. v. Kreiter, 2015 WL 9259544 at *5 (N.D. Ill. 2015); Bankers Life, 2015 WL 515965 at *3-4 (N.D. Ill. 2015). In addition, Judge McDade in the Central District of Illinois has performed an extensive analysis of the case law and also concluded that the Illinois Supreme Court would reject the two year bright line rule. Cumulus Radio Corp. v. Olson, 80 F.Supp.3d 900, 905-09 (C.D. Ill. Feb. 13, 2015).

Joining the majority, the court held as follows:

This court agrees with the reasoning of the Montel Aetnastak, Traffic Tech, Bankers Life, and Cumulus Radio decisions and concludes that the Illinois Supreme Court would reject a two year bright line rule in favor of a fact specific test. Two years may be sufficient to find adequate consideration, but it is not always necessary. In reaching this decision the court also finds persuasive Justice Schmidt’s dissent in Mudron, in which he points out the difference between the employee being terminated and resigning. As he noted in discussing the case on which the Mudron majority relied, “in Mid-Town [Mid-Town Petroleum Inc. v. Gowen, 243 Ill.App.3d 63 (1993)] the plaintiff “quit” because the consideration failed. The majority here holds that the consideration failed because [the defendant] quit. Big difference.” Mudron, 379 Ill.App.3d at 730-31 (Schmidt, J. dissenting).

It bears mention that the decision (denying defendant’s summary judgment motion) expressly notes that the plaintiff was seeking damages, i.e., (in contrast to the typical noncompete case) the plaintiff was not seeking injunctive relief. As the court observed (quoting Judge Schmidt’s dissent in Mudron), “even a peppercorn of consideration is sufficient to support a finding of adequate consideration when one seeks damages at law while more should be required when one seeks equitable relief.”

Accordingly, the impact of the decision on noncompete cases seeking injunctive relief is uncertain.