Two-Year Continuous Employment Rule to Support Non-Compete Validated by Illinois Appeals Court

Fifield v. Premier, 2013 IL App (1st) 120327 is rightly regarded as a watershed case in Illinois employment and non-compete law circles for squarely stating that two years of continuous employment is the required consideration to support a non-compete agreement in an at-will setting.

Prairie Rheumatology Associates, SC v. Francis, 2014 IL App (3d) 140338 represents an appeals court’s recent validation of the two-year rule in the context of a medical practice suing to prevent one of its former physician employees from competing against it.

The plaintiff medical company and the doctor defendant entered into an at-will employment contract (it could be terminated by either side at any time) that contained a 2-year and 14-mile non-compete term. The defendant agreed not to perform competing medical services for 2 years and within 14 miles of the plaintiff’s office measured from the date defendant’s employment ceased and the physical office location.

19 months into her tenure, defendant quit and went to work for a medical services firm located nine miles from plaintiff’s office. Plaintiff sought a preliminary injunction to enforce the non-compete. The trial court entered an injunction that prevented the defendant from treating plaintiff’s current patients but allowed defendant to treat patients that belonged to her before she started working for the plaintiff. The defendant appealed.

Held: reversed. Non-compete lacks consideration and is not enforceable.

Reasons:

In Illinois, a post-employment restrictive covenant (like a non-compete agreement) is enforceable only where it is reasonable in geographic and temporal scope (“space and time”) and necessary to protect a legitimate employer interest.  A restrictive covenant is reasonable where (1) it’s no greater than necessary to protect the employer’s legitimate business interest, (2) it doesn’t impose an undue hardship on the employee, and (3) isn’t injurious to the public. (¶ 12).  But before the court analyzes these three factors, it must first determine whether the restrictive covenant is supported by consideration.

The reason for the consideration rule is because an employer’s promise of continued employment is often illusory in an at-will relationship since the employer can fire the employee at any time without warning.  Two years or more of continued employment constitutes adequate consideration in the non-compete setting and the two-year rule applies even where the employee resigns on his own instead of where he is fired.  (¶¶ 14-15).

Here, the defendant resigned 19 months after her employment commenced – five months short of the required two-year consideration period. As a result, the court declined to enforce the non-compete.

The court rejected plaintiff’s argument that it gave the defendant “additional consideration” in the form of marketing support and facilitating defendant’s hospital privileges. Looking at the evidence, the court found plaintiff gave defendant minimal assistance in obtaining hospital privileges and failed to introduce defendant to any referral sources as was promised. At the injunction hearing, plaintiff’s principal couldn’t name a single doctor to whom she introduced defendant during defendant’s time practicing at plaintiff’s office.  (¶¶ 18-19).

Afterwords:

This case cements rule that two years of continuous employment is required for there to be adequate consideration to enforce a post-employment non-compete term.  An employer can possibly get around this by offering additional consideration (i.e., something the employee is otherwise not entitled to).  But where the employer cannot offer evidence of the additional consideration, the two-year rule controls and will bar enforcement of the non-compete.

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PaulP

Litigation attorney at Fisher Kanaris, P.C. representing businesses and individuals in all types of commercial disputes.