“Will It Play in Peoria?!”: Fed. Court Casts Doubt on Continued Vitality of ‘Two – Year Rule’ to Enforce Non-Compete

Peoria

Fifield v. Premier 2013 IL App (1st) 120327 is (was?) an important case in employment law circles for cementing the “two year rule”: two years of continuous employment is the bare minimum length of at-will employment required for an employer to enforce a restrictive covenant.

From the employer’s vantage point, the rule was troubling since it gave the employee all the leverage: he could leave a job at any time before he reached the two-year mark regardless of whether he signed a non-compete.

About two years later, Prairie Rheumatology Assocs. v. Francis, 2014 IL App (3d) 140338 followed Fifield but with a twist: it considered whether an employer could elude the two-year rule if by offering am employee an additional benefit (e.g., training, marketing support, bonus payments, etc.) beyond continued employment.  Still, the court in that case nullified the non-compete since the doctor defendant decamped less than two years  of her hire date.

Enter Cumulus Radio Corporation v. Olson, 2015 WL 643345 (C.D.Ill. 2015), a Federal case that examines whether the two-year rule is inexorable in the context of a radio station’s injunction suit against a competitor in the Peoria, Illinois market.

The plaintiff sued its former account executive and his new employer, a competing station, for violating restrictive covenants contained in an employment contract signed by the executive.  The contract contained a six-month/sixty mile non-compete term and a 12 month non-solicitation and non-disclosure term.  The non-solicitation clause barred the executive from contacting certain of plaintiff’s customers (radio advertisers) for 12 months after he leaves.

The plaintiff resigned 21 months into his tenure with plaintiff and began working for the competitor just two days later.  The plaintiff sought a temporary restraining order (TRO) preventing the executive from working for the competitor for the duration of the non-compete term.  The Southern District granted in part and denied in part the plaintiff’s TRO request.

Under Federal Rule of Civil Procedure 65, a TRO plaintiff must show that (1) he will suffer immediate, irreparable injury; (2) a likelihood of success on the merits; and (3) lack of an adequate remedy at law.  If the plaintiff makes the required showing on elements (1)-(3), the court then balances the relative harms to the parties and the public if the TRO is granted.  *2.

On the breach of contract count – alleging the executive breached all the restrictive covenants – the court found that the executive’s 21-month tenure with the plaintiff was sufficient consideration to support the non-compete.

The court refused to rigidly apply Fifield and “predicted” that Illinois’ Supreme Court would apply a more flexible test than the dogmatic two year rule.

For support, the court pointed to two  recent Northern District decisions that rejected the two-year rule in favor of a more fact-specific and flexible test.  The reason, according to the court, was that if the two-year test is formulaically applied, restrictive covenants would be rendered illusory and voided at the “whim of the employee.” (**4-5).

In finding that employing the executive’s for a 21-month term was adequate consideration to support the restrictive covenants, the court found that the plaintiff showed a likelihood of success on the merits on its TRO claim that the executive breached the employment contract.

Takeaways

Significant in that it’s another Federal court casting doubt on the continued vitality of the two-year rule.  Practitioners who are seeking to enforce restrictive covenants where the underlying employment length didn’t reach two years, now have three District court cases – two from the Northern, one from the Southern – that show a willingness to depart from the two-year rule.

 

 

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PaulP

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