Illinois Supreme Court

Are Non-Competition and Non-Solicitation Agreements Enforceable in Illinois?

Whether a non-competition or non-solicitation agreement is valid and enforceable under Illinois law depends upon the specific terms of the agreement, as well as the unique facts and circumstances surrounding the agreement, employment, separation of employment, and post-employment employee conduct.

Adequate Consideration

The first question is whether adequate consideration exists to support a restrictive covenant.

Illinois Supreme Court Affirms Dismissal of Retaliatory Discharge Lawsuit

On February 4, 2021, the Illinois Supreme Court affirmed the dismissal of claims for retaliatory discharge and violation of the Illinois Whistleblower Protection Act.  Rehfield v. Diocese of Joliet, 2021 IL 125656 (Feb. 4, 2021).  Plaintiff alleged that defendant unlawfully retaliated against her by terminating her for reporting a parent’s threatening conduct to police.  Plaintiff alleged that her employment termination violated Illinois public policy to investigate and prosecute criminal offenses.  She further alleged that defendant’s actions were likely to make other staff and faculty members reluctant to come forward to report potentially unlawful or criminal conduct.  Plaintiff also alleged that defendant’s actions violated the Illinois Whistleblower Act, which prohibits Illinois employers from retaliating against Illinois employees for disclosing information to a law enforcement agency, provided that the employee has reasonable cause to believe the information discloses a violation of a state or federal law, rule, or regulation.

Illinois Supreme Court Upholds Complaint for Negligent Hiring, Retention and Supervision

On May 23, 2019, the Illinois Supreme Court upheld a plaintiff's complaint against an employer for negligent hiring, retention, and supervision of an employee.  Jane Doe, et al. v. Chad Coe, et al., 2019 IL 123521 (May 23, 2019).  This case involved an alleged sexual assault by a youth pastor who was employed by the employer.  The plaintiff alleged that the employer negligently and willfully and wantonly hired, supervised, and retained the employee.  The plaintiff filed a complaint alleging five counts: (1) negligent supervision; (2) negligent retention; (3) willful and wanton failure to protect; (4) willful and wanton retention and failure to supervise; and (5) negligent hiring.  Under Illinois negligence law, an employer may be liable for an employee's torts in one of two ways, depending on whether the employee was acting within the scope of his employment.  If the employee was within the scope of his employment, the employer can be found liable for his actions under a theory of vicarious liability, or respondeat superior.  If an employee acts outside of the scope of his employment, however, the plaintiff can bring a direct cause of action against the employer for the employer's misconduct.  Negligent hiring, negligent supervision, and negligent retention are all direct causes of action against the employer for the employer's misconduct in failing to reasonably hire, supervise, or retain the employee.

Illinois Appellate Court Rules that Employer's Complaint States a Claim against Employee for Breach of Fiduciary Duty and Tortious Interference

On May 10, 2019, the Illinois Appellate Court, First District, reversed the trial court's dismissal of an employer's two-count complaint for breach of fiduciary duty and tortious interference with prospective economic advantage.  Advantage Marketing Group, Inc. v. Keane, 2019 IL App (1st) 181126 (First District May 10, 2019).  The First District held that the employer's complaint stated causes of action against the employee for breach of fiduciary duty and tortious interference, even though the employee was not an officer or director of the company.  The employer alleged that the employee breached his fiduciary duty to the employer when he allegedly failed to disclose and misappropriated a corporate opportunity to purchase a competing business.  Under Illinois law, an employee owes fiduciary duties to his or her employer, which arise from the employment relationship.  These include the duties of loyalty and fidelity as well as the duty to avoid self-dealing at the expense of the employer.

Bright-Line Two-Year Rule for Noncompetition Agreements Reaffirmed by the Illinois Appellate Court

On March 29, 2019, the Illinois Appellate Court, First District, upheld the rule that continued employment for less than two years does not constitute adequate consideration to support noncompetition or nonsolicitation provisions contained in Illinois at-will employment contracts.  Axion RMS, Ltd. v. Booth, 2019 IL App (1st) 180724 (First Dist. March 29, 2019).  This is the so-called "two-year rule," established by the Illinois Appellate Court, First District, in its decision in Fifield v. Premier Dealer Services, Inc., 2013 IL App (1st) 120327, which remains fluid and controversial, because the Illinois Supreme Court has not decided the issue.  Consequently, federal district court judges may, but are not required to follow the "two-year" rule when determining the enforceability of noncompetition or nonsolicitation agreements under Illinois law.  Federal judges in the U.S. District Court for the Northern District of Illinois have split on the issue--some follow the bright-line "two-year rule," while others determine the enforceability of employment restrictive covenants based upon the totality of the circumstances.

Illinois Appellate Court Declines to Establish Per Se Standard of Reasonableness for the Temporal Scope of Employment-Based Noncompetition and Non-Solicitation Agreements.

On December 11, 2018, the Illinois Appellate Court, Third District, declined to establish a per se standard of reasonableness for the temporal scope of employment-based restrictive covenants, indicating that reasonableness must be determined based upon the totality of the facts and circumstances of each individual case.  Pam's Academy of Dance/Forte Arts Center v. Marik, 2018 IL App (3d) 170803 (12/11/2018).  In this case, the plaintiff alleged two counts of breach of an employment contract and a third count for breach of the Illinois Trade Secrets Act.  The plaintiff alleged that the defendant, a former employee, breached their employment non-disclosure and restrictive covenant agreement by opening a dance studio within 25 miles of the plaintiff's studio and soliciting students and teachers through an improperly-obtained customer list.

Federal Judge Rules that Non-solicitation Provision of Employment Agreement is Enforceable

On October 20, 2017, a federal district court judge for the Northern District of Illinois held that a non-solicitation restrictive covenant contained in an employment contract was not unenforceable for lack of adequate consideration, even though the defendants were employed for fewer than two (2) years.  Stericycle, Inc. v. Simota, et al., No. 16 C 4782 (N.D.Ill. 10/20/2017).  In so holding, the court rejected the Illinois Appellate Court's ruling in Fifield v. Premier Dealer Servs., 2013 IL App (1st) 120327, which held that a non-competition or non-solicitation restrictive covenant contained in an employment at-will employment agreement is unenforceable for lack of adequate consideration when the employee was employed for fewer than two (2) years.  Several other Illinois Appellate Court decisions have followed Fifield and adopted the so-called "two-year rule," but the Illinois Supreme Court has not reached the issue.  Accordingly, federal court judges are not bound to follow Fifield, and instead must make a predictive judgment on how the Illinois Supreme Court would decide the issue.

7th Circuit Clarifies Standard for Preemption of Employment-Related Tort Claims under the Illinois Human Rights Act

On August 28, 2017, the 7th Circuit affirmed an order of summary judgment in favor of the defendant on an Illinois state-law claim for intentional infliction of emotional distress in the employment law context.  Richards v. U.S. Steel, No. 16-2436 (7th Cir. 8/28/2017).  The plaintiff filed a lawsuit against her employer for sexual harassment, retaliation and intentional infliction of emotional distress.  The sexual harassment and retaliation claims were dismissed based on timeliness grounds prior to this appeal.  The issue on appeal was whether the claim of intentional infliction of emotional distress failed as a matter of law based on preemption by the Illinois Human Rights Act ("IHRA") and on substantive grounds.  The case involved various incidents of workplace and sexual harassment.  The IHRA provides that no court shall have jurisdiction over the subject of an alleged civil rights violation other than as set forth in the IHRA, which means that jurisdiction is limited to the claims enumerated in the IHRA.

3.3 Million Dollar Jury Verdict in Wrongful Termination Case

On March 2, 2016, the Illinois Appellate Court, First District, affirmed a substantial jury verdict in an Illinois wrongful termination lawsuit in which the plaintiff alleged that his employment was terminated in retaliation for contacting the Illinois Attorney General's office and reporting information that he believed was a legal violation as well as for providing responses to a Freedom of Information Act request.  Crowley v. Watson, et al., 2016 IL App (1st) 142847 (3/2/2016).  The plaintiff is an attorney who worked for Chicago State University.  His wrongful discharge lawsuit was based on the Whistle Blower Protection section of the Illinois Ethics Act, which prohibits retaliatory action against a state employee for his or her protected activity, including the disclosure of legal violations to a public body.  The First District noted that the claim is analogous to the Illinois common law tort of retaliatory discharge, which is an exception to the general rule of employment at-will in Illinois.  Under Illinois law, there is a cause of action for retaliatory discharge where an employee is discharged in retaliation for engaging in protected activities, in violation of a clear public policy mandate.

Federal and Illinois Courts Disagree About What Makes Non-Compete Clauses in Employment Contracts Enforceable

There is a judicial split between federal judges in the Northern District of Illinois and the Illinois Appellate Court, First District, on the issue of whether two years of continued employment is required for adequate consideration to support a non-competition provision in an employment contract under Illinois law.  In 2013, the Illinois Appellate Court, First District, held that (absent other consideration) at least two years of employment is required as consideration to support a non-compete or non-solicitation clause in an employment agreement.  Fifield v. Premier Dealer Servs., Inc., 373 Ill.Dec. 379, 993 N.E.2d 938 (Ill.App.1st Dist. 2013).  Otherwise, the non-compete or non-solicitation provision is unenforceable for lack of consideration, even if the employee left employment voluntarily.

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