Heyl Royster

 


Heyl Royster

 

Recent Developments in the Courts

8/22/13

Illinois Appellate Court Mandates Two-Year Rule for Non-Competition and Non-Solicitation Agreements

The Illinois First District Appellate Court recently held there must be at least two years or more of continued employment to constitute adequate consideration in support of a non-competition or non-solicitation provision. See Fifield v. Premier Dealer Services, Inc., 2013 IL App (1st) 120327. This decision is significant because it imposes a bright line rule requiring two years of continued employment before such agreements are enforceable and it rejected any argument that the rule should be different just because the agreement is entered before or at the time the individual is hired.

With the Fifield holding, employers are at risk that a restrictive covenant will not be enforceable when continued employment is the sole consideration. In such case, an employee that resigns prior to his or her two year anniversary will be able to breach the agreement without legal consequence.

In Fifield v. Premier, the plaintiff was originally employed by Great American Insurance Company and was assigned to work exclusively for Premier Dealership Services (PDS), which was a subsidiary of Great American. When Great American sold PDS to Premier, Fifield was informed his employment would end. Premier, however, made an offer of employment that was conditioned upon Fifield’s signing a non-solicitation and non-compete agreement which lasted two years and covered 50 states. Fifield negotiated the agreement to include the provision that if Fifield was terminated without cause during the first year of his employment, the restrictive covenant would not apply.

After three months of working for the defendant, Fifield voluntarily resigned and began working for a competing insurance firm. Premier then sued Fifield and his new employer to enforce the non-compete agreement; Fifield and his employer filed a Motion for Declaratory Relief, asking the court to find the agreement unenforceable. The trial court held in favor of Fifield, finding the agreement was unenforceable for lack of consideration. Premier appealed this decision.

Relying on precedent, the First Appellate District held it was irrelevant whether Fifield signed the restrictive covenant before or after he was hired because the two-year non-solicitation non-competition provisions clearly restricted Fifield’s post-employment conduct. See Brown & Brown, Inc. v. Mudron, 379 Ill. App. 3d 724, 887 N.E.2d 437 (3d Dist. 2008); Bires v. WalTom, LLC, 662 F.Supp.2d 1019, 1030 (N.D.Ill. 2009). Continuing, the court found Fifield’s employment for three months was insufficient consideration (even though he resigned), and that the non-compete agreement was therefore not enforceable.

It is possible that the Fifield decision will be appealed. Until that occurs, employers may wish to consider whether additional consideration should be offered to ensure the restrictive covenants are enforceable.

Supreme Court Issues Two Decisions Favorable to Employers

On June 24, 2013, the United States Supreme Court issued two significant decisions making it harder for employees to prove liability for harassment or retaliation under Title VII. In University of Texas Southwestern Medical Center v. Nassar, 133 S.Ct. 2517 (2013), the plaintiff alleged the defendant hospital retaliated against him for complaining about harassment. The issue addressed by the court was whether the plaintiff had to prove the retaliation was: (a) the motivating factor, or (b) the “but-for cause” of the adverse employment action.

Under the motivating factor standard, a plaintiff’s burden is lessened, as he or she only needs to prove the motive to retaliate was one of the employer’s motives, even if the employer had other lawful motives. Under the “but-for” standard, however, the plaintiff must prove the motive to retaliate was the sole motivation for the retaliatory action. The Court in Texas Southwestern concluded that the heightened “but-for” standard applied to retaliation cases, thus making it more difficult for plaintiffs to prevail in these types of cases.

In Vance v. Ball State University, 133 S.Ct. 2434 (2013), the plaintiff sued the defendant for hostile work environment. Employer liability for hostile work environment depends, in part, on whether the harasser was a co-worker or a supervisor. If the harasser is a co-worker, the employer is liable only if it was negligent in controlling the working conditions. If, however, the harassment results in a tangible employment action by a harassing supervisor, the employer is strictly liable.

The Supreme Court in Vance held that an individual is a “supervisor” only when the employer has empowered the employee to take tangible employment actions against the victim. Thus, an employer is strictly liable for harassment only if the harasser has the power to hire, fire, promote or demote.