employment agreement

Illinois Appellate Court Holds That Two Years of Continuous Employment Necessary to Enforce Restrictive Covenants

In a very significant ruling, the Illinois Appellate Court has held that in order to enforce a restrictive covenant against an employee, the employee must work for the employer for at least two years continuously following execution of the document.  Restrictive covenants are often used by employers to bar an employee for working for a competitor or even working in the same field for a specified period of time in the event that the employee separates his employment from the employer.  Oftentimes, this restriction places a huge burden on the employee, freezing him out of legitimate work opportunities.  On the other hand, the employer often contends that it has legitimate business interests to protect and would be damaged if the employee left and took his knowledge with him to a competitor.  Court in the past had suggested that one year of post-employment was necessary.  It should be noted that this opinion was issued by one district of the appellate court (covering the Chicago area) and is not binding statewide; however, it is likely to be very influential in litigation in this area.

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.