Non-Competes . . . Redux

For those who have an interest in the evolving legal landscape against which restrictive covenants play out (and surely there must be a couple of you), Illinois continues to be an active stage. Recently two federal courts in the Northern District of Illinois took a swing at the issue (applying Illinois law) in the dramas cited as Montel Aetnastak, Inc. v. Miessen and Instant Technology, LLC v. DeFazio.

Let’s get on the same page with our terminology. The discussion below focuses on “non-competes,” or “covenants not to compete,” or “restrictive covenants” – these expressions are largely interchangeable and all point to the same premise: an agreement by an employee not to compete with his employer if his employment ends. Employers like ‘em because they help protect an employer’s intangible asset – its relationships with its clients and customers. Employees hate ‘em because they restrict employee mobility and employment choices.

As a result of this tension, employers often press to enforce their non-competes when an employee quits, and employees dodge and weave to have them invalidated. Courts are often saddled with figuring out if any given non-compete should be enforced.

Keep in mind when trying to understand these agreements: in order to have a valid, enforceable non-compete agreement it must have all the elements of any valid and enforceable contract, namely, an offer, an acceptance and consideration. “Consideration” is legal expression for the value that each side provides to the other in a contract. With an employment contract or a non-compete, the consideration provided by employers is the offer to hire the employee and to pay him or her salary/benefits, and so forth. For the employees’ part, they agree to work for the employer. Simple enough.

However, when push has come to shove in the non-compete arena, courts have haplessly gotten their hands dirty with figuring out whether the consideration given by both parties was “adequate.” That issue is center stage in Montel Aetnastak and Instant Technology.

But to better understand Montel Aetnastak and Instant Technology, let’s backtrack here just for a moment and revisit the 2013 Fifield case decided by the Illinois Appellate Court in Chicago{1}

In the Fifield case, the Illinois Appellate Court ruled that Mr. Fifield’s non-compete was unenforceable. If employment is the only consideration provided to an employee to support a non-compete at the time of hiring, then this consideration is insufficient. Instead, the Fifield Court found that there must be at least two years of continued employment by the employer for there to be adequate consideration to support a non-compete.

No prior Illinois case had set such a “bright line” two-year test.{2} Most all non-compete cases had been decided on a “facts and circumstances” approach – meaning no two cases are alike and what might constitute “adequate consideration” in one might not in another. While this kind of ad hoc analysis often results in solid decisions on a case-by-case basis, it yields a fuzzy and pot-holed roadmap for practicing attorneys advising clients. Understanding the big picture is often like trying to decode the lyrics to an REM song.

Illinois counsel who practice in this area were critical of the Fifield decision largely because of the perceived judicial meddling in the legislative domain. In any case, many practitioners found Fifield was aberrant and thought some subsequent decision would reverse its holding. In particular, the sharp focus in Fifield on the length of employment as adequate consideration comes without a lot of judicial precedent.

So what’s going on here? There is a perceived inequity at the heart of many of these cases that gives courts queasy heartburn. That perceived inequity unfolds something like this:

Scene 1– Boss’s Office, Monday AM

The Cast:

The Boss. A senior executive of Acme Anvil Co. Older, experienced, wizened, furtive. Sharp-fitting dark suit reflecting the uniform of power and authority. Given to deflection and indirection in discussion. Squeaky-clean shaven, unctuous, redolent of Old Spice.

The Kid: Wide-eyed and eager, but not entirely naive. Slightly disheveled with several days growth of beard as current fashion dictates. Sports a de rigueur canvas messenger bag; plaid Van’s slip-ons peek out from under frayed jeans.

The Scene:

The Boss’s corner office, the smokestacks of industry barely visible out the smudged window, the muted sounds of commerce clicking and whirring in the background.


Boss, staring out the window, pivots when the Kid enters the room. Smiling, pumping the Kid’s hand: Kid! So glad to have you on board!! Your reputation precedes you . . . we’re all looking for great things from you around here!!!

Kid (returning the smile with enthusiasm and a certain false deprecation): Happy to be here, Boss, and I can’t wait to get started! What’s up first?

Boss: Oh, the usual HR stuff – employment forms, tax forms, yada yada . . . you know – that kind of stuff.

Kid: Gotcha. Well I’m raring to go, so point me in the right direction.

Boss: Will do. But wait . . . while you’re here, let’s take care of this silly thing first. One of the standard forms everyone signs is the Acme non-compete agreement. (Slides a 7 page document across the desk). Standard stuff, you know.

Kid (frowning as he thumbs through the pages without obvious comprehension): What’s this all about?

Boss: Oh jeez – it’s typical lawyer crap . . . if you quit or no longer work here, you agree not to compete with Acme for a couple years. Everybody has them these days, you know. Pretty straightforward. Everyone here at Acme signs them before they start. Not sure they ever try to enforce them anyway.

Kid: Hmmm . . . well, OK I guess. (Minor hesitation, then he reluctantly signs) On to HR!

Boss, all grins: Attaboy!

Scene 2– Back in Boss’s Office, Wednesday PM

Boss (sober, distant, feigning concern): Kid, I have some bad news . . . got a Memo from the Big, Big Boss – he’s on the Board, you know, the Big Board – we got word that we have to do a Reduction In Force. Hate to RIF ya, Kid, but it’s a last-in, first-out kind of thing, you understand, so Friday will be your last day. I’m sorry to see you go before you really got your chance at bat.

Kid, aghast as much as shocked: Whaaaat? But, but . . . but, I just started . . . how can I be let go?

Boss: Nothing personal, Kid - just one of those things. You’ll land on your feet in no time. Oh, by the way, don’t forget your non-compete. Gotta stay away from our industry for two years starting today.

[Devastated, Kid slinks offstage, Willy Loman-like. Lights dim.]

The Federal Fifield Fallout

Since the Fifield decision, the Federal Court in in the Northern District of Illinois – applying Illinois law – has had occasion to ruminate on Fifield:

Montel Aetnastak

In 2014’s Montel Aetnastak {3} case, a Judge in the Northern District (applying Illinois law) was unimpressed by Fifield’s attempt to create a bright line test requiring a two-year rule before a non-compete would be enforced. The defendant argued in this case that because she worked for Montel for only 15 months, the non-compete covenant failed the Fifield test and should be tossed out. But the Court disagreed, stating that Illinois law does not yet provide a clear rule to apply in these types of cases. The Court concluded that given the absence “of a clear direction from the Illinois Supreme Court,” it would continue to employ the “facts and circumstance” approach historically used by most Illinois courts.

Instant Technology

In Instant Technology,{4} another Northern District judge examined Illinois non-compete law in testy litigation between a recruiting firm and some key former employees. Instant Technology sued Elizabeth DeFazio for (among other things) violating a non-compete agreement contained in her employment contract. Following a long trial the Court ultimately ruled in DeFazio’s favor.

The Court found that DeFazio’s non-compete provisions were unenforceable because they lacked adequate consideration. Under Illinois law, when assessing the enforceability of a non-compete, the Court looks to whether (1) the covenant is ancillary to a valid contract, and (2) whether it’s supported by adequate consideration. And adequate consideration is lacking where an employee can be fired promptly after he signs it (to wit: the hapless Kid in our drama above). Consideration will only be found to be adequate, the Court reasoned, if after signing the non-compete, the employee stays on the job for at least two years – citing Fifield for support.

So now we have two different Northern District of Illinois cases weighing in on the “two-year” rule, and coming to different conclusions, as only judges can do. Hopefully the Illinois Supreme Court will have the opportunity to address this issue in another case and provide a better roadmap for the benefit of both employers and employees.

Simple Takeaways:

Until there’s some Illinois Supreme Court (or legislative) clarity, what should you do?

  • If you are an employee, consider that the “two-year” rule seems to be getting some traction in Illinois. If you signed a non-compete within the past two years, and jumping ship has some appeal, consider doing so before the 2-year clock runs. Dead bang winner if you get sued? Hardly. Good fodder for a motion to dismiss? You bet. Maybe you’ll be the case that goes up to the Illinois Supreme Court and makes new law. Think how good that’ll look on your LinkedIn page.
  • If you are an employer, tread carefully when considering trying to enforce a non-compete signed within the past two years. This is particularly true where there is a “mutual” attorney fee provision – where you have to reimburse the employee for his attorney fees if you lose.

This “two-year” rule seems to play out where just giving a guy a job seems to be the only consideration (see: the Boss-Kid problem above). We are aware that some counsel are advising employers to pay a “hiring bonus” – in addition to getting the job, the new employee gets, say, a $2,500 bonus as direct and singular consideration for the non-compete. Is that adequate consideration? No courts that we’ve seen have considered this. But that’s a darned slippery slope, right? . . . how about $1,000? $250? A Chick-Fil-A gift card? At what point does that “extra” consideration begin to feel like a patently unfair bargain?

Many employers are skinning this cat another way by having employees execute confidentiality and non-disclosure agreements. The nuances of those agreements creep beyond the scope of this already over-long article.

Some Director’s Notes:

  1. Set out at the end of this article are case citations to the court decisions discussed above. Some might want to dig deeper on their own, or may want to identify the many ways I’ve oversimplified my summaries. For most though, reading the actual cases will be as interesting as reading the ingredients on the side of a Lucky Charms box.
  2. Instant Technology discusses many other issues related to non-competes - such as their “reasonableness,” defining the employer’s legitimate business interests, injury to the public, employee’s access to trade secrets, near-permanent customer relationships, and so on. Each of these is an important discussion in its own right, but a bit of a detour with regard to the scope of this article. A full embrace of the case is recommended to counsel and insomniacs.
  3. Remember that non-competes cross our stage in different ways. Frequently they are written as part of a business purchase and sale: “I buy your business, and you agree not to compete with me post-closing.” Recognize that these cases present an entirely different analysis of “adequate consideration,” and the angst of Fifield-Montel-Instant Technology typically does not play out in those cases.
  4. In 2005 Thomas Friedman published the widely-read and very well-received The World Is Flat. This was an interesting study in the manner in which technological advances have profoundly impacted our world – in particular how commerce and communication have been reinvented. I recalled Friedman’s work in thinking about the Instant Technology case. Instant Technology was interesting and hard-fought (including some 20 witnesses at trial!) as it involves a dustup over largely intangible assets – non-competition agreements, confidentiality agreements, protection of trade secrets, and so forth – that were not, by and large, the grist of non-compete disputes a generation ago.

More, um, seasoned counsel will recall that the traditional non-compete landscape involved the sales agent of a company who over years ingratiated himself or herself with his customer’s purchasing agents. The coin of the realm back in the day was the knowledge of the purchasing agent’s favorite kind of scotch, and the dates of his kids’ birthdays. Most often the customers were local businesses, down the street or across town, and the sales rep met with them regularly. Non-competes often had a distinctly parochial feel, and most often included references to geography (“you can’t compete in Illinois”). With the international scope of business operations, the limitations of geography sometimes seem almost quaint.

As the world has “flattened,” consider a not-uncommon scenario: a Delaware corporation based in Chicago employs a technical computer engineer who writes systems code in California that is used to manufacture products in New Delhi, for sale in Europe and the Middle East. How do you shape a non-compete that makes any kind of sense here for the Kid? Or the Boss?

  1. In some jurisdictions (California and North Dakota, for example), legislation has largely banned the use of non-competes as incompatible with a global marketplace – particularly one that is increasingly information-based and knowledge-based. Recent Federal and State cases interpreting Illinois law to include a “two-year rule” seem to be pushing the needle down the continuum toward restricting their use in our market.



{1} See Fifield v. Premier Dealer Services, Inc., 993 N.E.2d 938 (Ill. App. Ct., 2013).

{2} In Diederich Insurance Agency LLC v. Smith 952 N.E.2d 165, 169 (Ill. App. Ct. 2011), the court found that two or more years of continued employment was adequate consideration for a non-compete; conversely seven months of continued employment was considered insufficient to support a non-compete in Brown & Brown Inc. v. Mudron (Ill. App. Ct. 2008).

{3} See Montel Aetnastak, Inc. v. Miessen, Case No. 13 C 3801, 2014 U.S. Dist. LEXIS 11889 (N.D. Ill. Jan., 2014).

{4} See Instant Technology, LLC v. DeFazio, Case No. 1:12-cv-00491 (N.D. Ill., May, 2014).


Nothing contained in this article should be taken as legal advice for your specific situation. Consultation with competent counsel prior to implementing any legal strategy is highly recommended.

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