Within a year of when Michael Booth signed an employment agreement that had a non- competition clause, he resigned as president of Axion RMS and then went to work for a competitor. It was also alleged that, after leaving Axion RMS, he started luring away former colleagues. Axion sued Booth for the alleged violation of the non-compete contract.
A circuit court judge dismissed the case because (1) the alleged consideration for the restrictive covenant was Booth’s continued employment, and (2) several Illinois Appellate Court cases require, as a bright-line rule, two years of subsequent employment to qualify as adequate consideration for such provisions.
The circuit court judge also denied Axion’s request for leave to file an amended complaint that cured this problem (by alleging that the consideration for the non competition agreement included a boost in Booth’s salary, from $300,000 to $500,000 a year; his receipt of shares in the business; plus a promotion to president from vice president of sales).
Axion’s problem with the pleadings was that the original complaint was verified, and the initial allegation — that continuing employment was a consideration for the restrictive covenant — was a judicial admission that Axion could not contradict.
Affirming, the appellate court rejected Axion’s argument that it qualified for a “totality of the circumstances” analysis rather than the two-year rule.
On appeal, Axion argued that the court “erroneously applied a bright-line two-year rule” to determine whether the non compete clause in the employment agreement was supported by adequate consideration. Axion argued that the court improperly limited itself to considering only the length of time Booth worked at Axion after signing the employment agreement.
Axion claimed that the court should have instead applied a “totality of facts and circumstances” test, which would have allowed the court to consider Booth’s salary increase, newly issued stock and promotion as adequate consideration to render the non-compete clause enforceable. Axion cited for support of that argument the case of McInnis v. OAG Motorcycle, 2015 IL App (1st) 142644.
In McInnis, the former employee, like Booth in this case, argued that the restrictive covenant that he signed was unenforceable because he quit his job less than two years after signing it. And the employer in that case, like Axion, argued that the case presented “a unique factual situation that requires application of a fact-specific approach in determining the adequacy of consideration.”
In agreeing with the former employee, this appellate court noted the well-established principle in Illinois that continued employment for two years or more constitutes adequate consideration to enforce a restrictive covenant.
The Illinois Appellate Court determined that Booth was not given any additional consideration beyond continued employment and thus Axion’s reliance on McInnis case was misplaced.
It is well-established that a promise of continued employment for an at-will employee is adequate consideration to render a restrictive covenant enforceable, as long as there is at least two years of continued employment following the execution of the restrictive covenant. Fifield v. Premier Dealer Services, 2013 IL App (1st) 120327. And where no additional compensation, such as a raise or special benefits, is given to the employee, and the employee resigns less than two years after executing the restrictive covenant, the consideration is inadequate and the restrictive covenant is unenforceable. Prairie Rheumatology v. Francis, 2014 IL App (3d) 140338.
In this case, Axion’s verified complaint plainly stated: “The employment agreement was adequately supported by consideration by virtue of Booth’s continued employment with Axion RMS and the compensation paid by Axion RMS during his employment.” The verified complaint did not allege any additional consideration given to Booth in exchange for his signing the non-compete clause in the employment agreement. Although the verified complaint mentioned Booth’s promotion to president and shareholder, it did not allege any connection between those promotions in 2014 and the execution of the employment agreement in 2015.
If Axion had alleged additional consideration in its verified complaint, the court would have had additional facts and information to consider. Instead, Axion pleaded in its verified complaint that the only consideration given to Booth was his continued employment. This clearly limited the scope of the court’s analysis, within the context of existing case law, to the length of Booth’s continued employment.
In summary, because Axion pleaded in its verified complaint such that there were judicial admissions, those allegations cannot be casually changed as may be expedient to oppose a motion to dismiss. Accordingly, the trial court did not abuse its discretion in denying Axion leave to file its proposed amended complaint and thus the Illinois Appellate Court affirmed the dismissal of Axion’s complaint.
Axion RMS v. Booth, 2019 IL App (1st) 180724 (March 29, 2019).
Kreisman Law Offices has been handling commercial litigation matters, contract dispute lawsuits, probate litigation and catastrophic injury lawsuits for individuals, families and businesses for more than 40 years in and around Chicago, Cook County and its surrounding areas, including South Barrington, Hoffman Estates, Inverness, Rolling Meadows, Mount Prospect, Prospect Heights, Arlington Heights, Wheeling, Buffalo Grove, Northfield, Libertyville, Kenilworth, Highwood, Olympia Fields, Northbrook, Morton Grove, Lincolnwood, Park Ridge, Schiller Park, Franklin Park, Chicago (Dunning, Portage Park, Old Irving Park, Belmont Central, Hermosa, Logan Square, Bucktown, Wicker Park, Old Town, Ukrainian Village, Noble Square, Near North Side, Homan Square, Little Italy, Lower West Side, McKinley Park, Bronzeville, Oakland, Indian Village, Washington Park, Jackson Park, South Chicago, Hegewisch, East Side, Washington Heights, West Pullman), Evergreen Park, Hometown, Burbank, Hickory Hills, Willow Springs and Bedford Park, Ill.
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