By: Eugene Hollander
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Three Months Employment Not Sufficient Consideration for Post-Employment Restrictive Covenant
Employees are often faced with a dilemna on the job – they work for a new employer and then are thrust with a demand that they sign a non-compete agreement or other restrictive covenant, agreeing either not to solicit employees or clients when they separate their employment. The question becomes, what is the length of employment after an employee signs such a restrictive covenant that will bind an employee? According to an appellate court decision delivered on June 7, 2011, three months is not enough but two years will suffice. Earlier this summer, the court decided the case of Diederich Insurance Agency, LLC Smith v. Smith. In that case, Smith started working as an insurance agent for Diederich in October, 2007. At that time, he signed a non-compete agreement, agreeing that from the time of his separation of employment, he would not engage in the prohibited activity for a period of two years. Three months before Smith quit, he signed a confidentiality agreement that reduced the period of non-competition to one year. Diederich sued Smith claiming that Smith breached the revised agreement. Smith moved for dismissal of the complaint and the trial court dismissed the claim. On appeal, the appellate court held that for the revised employment agreement to be valid and enforceable, there needed to be consideration. The court found that continued substantial employment could be sufficient consideration for the employment agreement, but that three months is not enough. The court also stated, that a minimum, at least two years is required. Readers should be aware that this ruling was from only one district of Illinois’ appellate court, and is not binding on other district, including Chicago.