Wednesday, March 4, 2015

Central District of Illinois Explains Its Disagreement With Fifield Consideration Rule

At this rate, I should have about 20 blog posts this year concerning Illinois' controversial Fifield rule.

As I have explained in numerous posts, Illinois appears to have a unique rule concerning the type of consideration needed to enforce an employee non-compete agreement. And, once again, it's critical to point out that this unique rule applies only when: (a) the employee is at-will, and (b) the sole consideration provided in exchange for the non-compete restriction is the job itself.

The Appellate Court of Illinois in two separate cases (called Fifield v. Premier Dealer Services and Prairie Rheumatology Assocs., S.C. v. Francis) appeared to establish a bright-line test for determining the adequacy of this consideration. Those cases hold that two years of continued employment is necessary. And if the employee never gets to this two-year threshold, then the contract fails for inadequate consideration. (Recall, that courts almost never examine the adequacy of consideration in traditional contract disputes, but they do when restraints of trade are involved.)

Much of the controversy concerning the rule first announced Fifield stems from three truisms:

  1. The prior case law seemed to suggest that the "continued employment" rule was limited to a fact pattern where the employee signed the agreement after starting the job, not in connection with taking the job.
  2. The two-year rule is arbitrary and sounds like something more suited to a legislative enactment.
  3. The rule does not differentiate between voluntary and involuntary terminations, in effect giving an employee a two-year option in which to void his own contract.
I wrote last year that Francis seemed to provide momentum for this consideration rule and that attorneys better not discount Fifield as an aberration. And I have written on several occasions (including a few weeks ago) that federal courts have split in their understanding of how the Supreme Court of Illinois would interpret the Fifield rule.

Those decisions all come from the Northern District of Illinois, which hears a fairly high volume of competition disputes under diversity jurisdiction. (I also have been involved in one unreported case where a court in the Northern District declined to apply Fifield, finding that the Supreme Court of Illinois would not apply the rule.)

To my knowledge, the case of Cumulus Radio Corp. v. Olson is the first reported federal case outside the Northern District of Illinois where a judge has had the opportunity to weigh in on, and apply, the Fifield consideration rule. In that case, Judge McDade from the Central District of Illinois decided not to follow Fifield and Francis and found persuasive the reasoning of some of his colleagues in the Northern District of Illinois.

Judge McDade's conclusion embraces much of my prior criticism of the rule (though, I am slightly offended he didn't cite my blog):

"...the Court does not believe that the Illinois Supreme Court would adopt the bright-line test announced in Fifield. Such a rule is overprotective of employees, and risks making post-employment restrictive covenants illusory for employers subject completely to the whimsy of the employee as to the length of his employment. A case-by-case, fact-specific determination, on the other hand, can ensure that employees and employers alike are protected from the risks inherent in basing consideration on something as potentially fleeting as at-will employment."

In this very brief italicized passage, there is a lot of grist for the mill. Judge McDade notes and criticizes the option nature of the Fifield rule, the lack of a distinction in who ends the relationship, and the problems with basing consideration on employment itself. To that end, employers still should consider using something far more tangible and substantial than employment as non-compete consideration.

Judge McDade also analyzed the first truism that I outlined above - the weak case law support that seems to have motivated Fifield. His discussion notes that the impetus for the rule was Judge Posner's oft-cited opinion in Curtis 1000, Inc. v. Suess, where he noted employers could trick employees into signing onerous covenants only to terminate them and gain the benefit of a serious restraint. The illusory nature of "employment as consideration" justifies, therefore, a serious look when the employer is the one ending the relationship. Again, this is part of the original problem I had with the intellectual foundation of Fifield - in that there wasn't one.

Although the Supreme Court of Illinois originally declined to take up Fifield, we now are at serious risk of forum shopping and (worse) the piling on of flimsy Computer Fraud and Abuse Act claims just so an employer can get into federal court. The next time a party petitions for leave to appeal on a Fifield issue, the Court must take the case.

A copy of the Cumulus Radio decision is embedded below.

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