Tuesday, July 2, 2013

The Fourth Justice: My Dissenting Opinion in Fifield v. Premier Dealer Services

Although many commentators are discussing the Appellate Court of Illinois' opinion in Fifield v. Premier Dealer Services, Inc., you may not realize that I sat in on that case as the fourth justice. Unfortunately, my colleagues on the Court forgot to include my dissenting opinion.

So, I figured this blog was as good a place as any to fix that mistake.

"Justice Vanko, dissenting, throwing things in chambers, drinking an Old Fashioned, and about ready to lose his mind:

I dissent. A lot.

In today's ruling, the Court decides in the blink of an eye to rewrite the law of non-compete agreements for at-will employees. Perhaps this is a job the Supreme Court of Illinois wishes, one day, to undertake. Perhaps our General Assembly - if they can put this pension nonsense behind us - will see fit to change the law. But it decidedly is not the function of an intermediate appellate court to work such a fundamental change in the law without so much as a whisper of reasoned analysis.

The Court holds (at paragraphs 13-17) that "continued employment" constitutes sufficient consideration for a restrictive covenant as long as it lasts for two years or more. Fine. But, the Court then ignores decades of case law and sheer common sense. It lumps together this continued employment rationale in two vastly different contexts: (a) a covenant signed at the start of an employment relationship, and (b) a covenant entered into after the relationship begins (commonly known as an "afterthought" covenant).

No Illinois court has merged the analysis of continued employment like the majority does today. In the case of Diederich Ins. Agency, LLC v. Smith (Fifth District), the employee signed a non-compete roughly six months after the beginning of his employment. The same holds true with Lawrence & Allen, Inc. v. Cambridge Human Resource Group, Inc. (Second District), in which the employee signed an afterthought covenant not to compete 18 months after starting his job. Finally, Brown and Brown, Inc. v. Mudron (Third District) confronted a situation where "existing employees were required to sign an employment agreement" with a corporate successor.

I have just summarized all the relevant precedents the Court cites. Shorthand: N/A. To equate these cases with this one borders on lunacy. For some reason, the Court neglects to point out that the dozen or so decisions of this Court discussing and applying the continued employment doctrine all arise in the context of afterthought covenants. #NotASurprise. #Uncontroversial.

Recognizing its precedent gap, the Court pivots to a district court decision in Bires v. WalTom, LLC, which is not binding on this Court. To support its ruling, Bires relies on dicta from Curtis 1000, Inc. v. Suess. In Curtis 1000, Judge Posner was concerned with the adequacy of consideration when the employer - not the employee - obtained a restrictive covenant and then elected to terminate the employment relationship. Such a fact-pattern elicits notions of bad faith, fraud, lack of mutuality, unconscionability, and a host of other legal terms that only a lawyer could love. Nothing in that case suggests Judge Posner would have applied the continued employment doctrine to a fact-pattern in which the employee was the one who elected to end the relationship.

To recap, mathematically speaking:

(district court case X 1) + (dicta in Seventh Circuit case X 1) ≠ (consistent decisions of this court on continued employment doctrine X approximately 19) + (common sense X infinity)

The majority (which curiously never mentions or rebuts my dissent...#Waiver #Estoppel) fails to discuss why we should treat covenants signed at the start of employment differently than those afterthought covenants which pose special problems.

It has to do with the idea of reasonable expectations.

Suppose Fifield here signed on with Premier Dealer Services and had the expectation he would not be bound to any kind of a non-compete. That may have been an important factor in his decision to begin the relationship. He might have foresaken other equivalent opportunities. And over time, his status as a free-agent begins to cement. If his employer foists upon him a non-compete after years of hardened expectations, then it makes some sense for the law to step in and inquire as to the true consideration provided for that non-compete.

It's not the same case if Fifield walks into the relationship with Premier Dealer Services knowing full well he has to sign the non-compete to take the job in the first place. For starters, he isn't tricked. Both sides have put their cards on the table. He can try to negotiate the terms (which Fifield did here!). And he's in a better position to evaluate other opportunities before agreeing to be bound to the contract.

Yet, we find ourselves in a landscape where the Court finds the parties' reasonable expectations don't matter. Over the past several years, the continued employment doctrine has evolved from its historical roots. It originally was intended to eliminate an employer's chicanery into tricking an employee into signing a restrictive agreement, only to discharge him or her shortly thereafter. Our appellate courts then applied the doctrine regardless of which party - employer or employee - ended the relationship. That wasn't very smart. Now, we've extended it to all employees who are terminable at-will (that is, about 95 percent of private sector workers). That really wasn't very smart. And to put the cherry on top of this sundae, we've somehow spirited up a bright-line where the continued employment must last at least two years. That's just flat-out making stuff up. Welcome to the vortex of judicial activism and arbitrary rules!

So we've succeeded in giving employees a two-year option in which they can decide whether to breach a covenant not to compete or solicit customers. Terrific. Talk about creating uncertainty. This decision comes at great social cost. For starters, it will reduce companies' incentives to train younger workers and give them access to clients. It almost begs employers to limit their access to company secrets (particularly in that heart-stopping period right before an employee's two-year option window is about to close). This can only lead to declining productivity, and with where India and China are at in that regard, God help us.

Beyond that, we've screwed the lawyers. For years, they've operated under the assumption the continued employment doctrine applied to afterthought covenants only. Now, they'll have to start calling their clients and tell them we've subtly shifted the law on them. Why doesn't anyone care about lawyers? I don't get this.

Perhaps I'm being too naive. The lawyers will find creative ways around today's ruling. They'll write non-compete agreements so that something else provides consideration beyond the inception of employment itself. Imagine all the self-serving consideration paragraphs we now have to analyze. So I guess consideration could be a signing bonus of $2,500 (which surely will be deducted from the employee's other forms of compensation), eligibility to receive a year-end bonus, or access to company confidential information. One lawyer already has suggested sufficient consideration might come from making the covenant inoperable in the event of a termination without cause. Desperation is the mother of all invention!

In sifting through this precedential mess and trying to make sense of where we're at now, I am reminded of a quote from one of the great American movies of my lifetime - Billy Madison - which somehow seems fitting here:

Mr. Madison, what you've just said is one of the most insanely idiotic things I have ever heard. At no point in your rambling, incoherent response were you even close to anything that could be considered a rational thought. Everyone in this room is now dumber for having listened to it. I award you no points, and may God have mercy on your soul.
I would hold simply this: The continued employment doctrine only applies in the event of a covenant not to compete signed after the start of employment. And in all cases, the Court must consider the totality of the circumstances to determine whether continued employment provides sufficient consideration for an afterthought covenant, consistent with the general principles in Reliable Fire Equipment v. Arredondo. #CommonSense #JudicialRockStar #Pragmatist

I beg the lawyers for Premier Dealer Services to petition for rehearing on this issue. Or appeal to the Supreme Court of Illinois. I need a drink."

And here's the actual Opinion.

No comments:

Post a Comment