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.

In Axion, the appellate court held that, "where restrictive covenants are supported by adequate consideration based exclusively on continued employment, the employee's employment must continue for at least two years after execution of the restrictive covenant."  Therefore, the employee's employment for less than a year after he entered into the employment agreement was insufficient to constitute adequate consideration; and due to the lack of adequate consideration, the noncompetition clause was unenforceable.  Thus, the trial court did not err in dismissing Axion's complaint.  It should be noted, however, that restrictive covenants in employment agreements may be supported by consideration other than continued employment, such as salary increases, bonuses, or special payments allocated as consideration for the restrictive covenant.