The federal case of Instant Technology LLC v. DiFazio is somewhat of a rare breed in that the parties tried the case to the end. Most business disputes settle, frequently after an initial injunction hearing, and this generally holds true when the case arises from an acrimonious divorce (as was certainly the case with the key players in DiFazio).
I wrote last year on the case, primarily because the district court followed the Illinois Appellate Court's ruling in Fifield v. Premier Dealer Services, Inc. and invalidated several non-compete agreements on the grounds that the employees were not employed for the required two years to vest the contracts with consideration. (Remember, for at-will employees in Illinois, Fifield established the two-year rule if the sole consideration was the job itself.) On the facts in DiFazio, the case appeared to have some strengths for the plaintiffs, but like many non-compete disputes, the facts only get you so far. There's still the law to deal with, not to mention judicial distaste for these types of cases. Instant Technology had trouble during its bench trial on a number of fronts, including its presentation of damages.
Seeing that the case went up on appeal, I was interested to see what role the Fifield rule would play in the Seventh Circuit. Instant Technology's brief is now in.
Fifield appears to have taken a back seat, though that's not to say the Seventh Circuit won't issue some kind of analysis or statement about how the Supreme Court of Illinois might weigh in. The brief is long, but only a few pages mention Fifield. And the analysis seems intentionally thin. The reason could be that the employees who presented Instant Technology with a Fifield problem appear to be secondary players. Many appellate lawyers will abandon issues on appeal so that the reviewing court does not get too lost in a sea of issues.
Interestingly, Instant Technology shifted gears after losing its bench trial and hired a new law firm, Much Shelist, to represent it on appeal. That firm, ironically, represented the winning party in Fifield and helped create the two-year rule that now presents some problems for Instant Technology.
Instant Technology detoured around Fifield in an interesting way. Essentially, it argued the Supreme Court might use its overall "totality of the circumstances" to assess not only whether the covenant is reasonable, but also whether the contract has sufficient consideration. It gave an example from the facts of the case itself. One of the employees apparently had a prior stint with Instant Technology. In the employer's view, this prior employment should be a factor bearing on whether the new contract contains enough consideration.
I find it fairly unconvincing that a court would use the overall reasonableness test to assess the adequacy of consideration because it conflates two separate inquiries. The "totality of the circumstances" approach is a judicial check to weigh the contract terms with the asserted business interest. There's nothing from the Supreme Court's precedent that suggests it's meant to apply to an issue of contract formation. Furthermore, combining the consideration argument in the manner Instant Technology proposes would allow an enforcing party to use the same facts for multiple purposes. This is improper bootstrapping. Put another way, the facts that help an employer illustrate a protectable interest cannot also help it show the contract was formed properly.
Consideration should address what an employer gave up or what an employee gained by signing the contract. Fifield holds that the job itself only sometimes can be consideration because that job can be taken away. Take an example: if an employer agrees the employee only can be terminated for cause (with severance rights for a termination without cause) for a period of two years, then it's giving up a core element of the traditional at-will relationship. That's consideration. Determining whether the employee received access to customers or confidential information is not a consideration issue because it's tied intrinsically to whether the covenant terms are reasonable. Instant Technology's position would meld the two, and I think that's inappropriate.
I have said before that I am no great fan of Fifield, but I don't think we can fix it by creating more confusion in this area of the law.
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