Last week, the Seventh Circuit heard oral argument in the case of Instant Technology v. DiFazio, No. 14-2132. The DiFazio case is one of several Illinois district court cases that apply the so-called Fifield rule on consideration.
Readers of this blog know all too well the contours of this rule, but as a refresher, it holds that at-will employment itself only can serve as consideration for a non-compete agreement if the employment lasts at least two years. Effectively, the rule means that employers must consider alternative forms of consideration, such as a signing bonus or grant of severance, to bind at-will employees to a non-compete or non-solicit covenant.
(My discussion of the district court's ruling is found here.)
DiFazio was a pro-employee decision, as the district court found that several of the individual defendants had unenforceable non-competes by virtue of their short stint of employment with Instant Technology. The defense-friendly decision had a litany of other facts, particularly concerning the protectable interest underlying the covenants, so consideration was somewhat of a tangential issue in the case. It's likely that even without the rule the employees would have won.
Will the Seventh Circuit weigh in on whether Fifield is good law? That's undecided even after oral argument. Instant Technology downplayed Fifield in its appellate briefs. And then it hired as appellate counsel the same attorney, Anthony Valiulis, who argued on Fifield's behalf in the Appellate Court of Illinois. That must have been awkward, and indeed Mr. Valiulis made light of this during his presentation.
By and large, I thought the argument was a let-down. The panel consisted of Judges Frank Easterbrook, David Hamilton, and Ann Williams. In particular, Judge Hamilton has a strong interest in this area of the law, as he handled a number of trade secret and non-compete cases while in private practice. And as usual, Judge Hamilton asked the best, clearest questions. (Judge Easterbrook, surprisingly, asked none).
On Fifield, though, the court revealed very little. Judge Hamilton asked Mr. Valilulis whether the Appellate Court correctly decided Fifield. Not surprisingly, he had to admit that the court got it wrong. Instant Technology argued that consideration should be judged by a totality-of-the-circumstances approach, consistent with the underlying rule-of-reason analysis concerning a covenant's terms. That strikes me as a position that is principled, in that it relies on prior precedent in this area, but ultimately misguided since it conflates two entirely separate legal concepts. However, none of the circuit judges really took issue with Mr. Valiulis' argument on this.
Though not speaking about consideration necessarily, Judge Hamilton said when questioning Mr. Valiulis that non-compete law is an area where predictability is incredibly important, both for employees and employers. That may provide a justification for the Fifield rule, which for all its faults is at least easy to apply in practice. In fact, Mr. Valilulis conceded that was one of his arguments in the Fifield case for the bright-line rule.
One issue did not come up. The court didn't even suggest that it would certify the consideration question to the Supreme Court of Illinois, which it is able to under Seventh Circuit Rule 52 (as well as state Supreme Court Rule 20(a)). It may be that the other flaws in Instant Technology's case prevent this, because Circuit Rule 52 only allows for certification on a state-law question that "will control the outcome of a case."
My guess is that Judge Hamilton will write an opinion affirming the district court's ruling and will discuss in passing the controversy concerning Fifield's consideration rule. Ultimately, though, because it may not be case-dispositive, I do not think he'll weigh in on what the rule should be.
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