To employers: want your employees to be covered by non-compete covenants? You're going to have to pay them for it

An appellate court in Illinois, a state that, unlike California, enforces "reasonable" employment non-compete covenants, has ruled recently that a non-compete covenant must be supported by at least two years worth of employment. Fifield v. Premier Dealer Services, Inc. (IL Ct. App. 2013). Here's a compelling summary by the legal team that successfully prosecuted the case on behalf of the employee. The Supreme Court of Illinois has declined to review the case, making Fifeld the law of the land of Lincoln (at least in large part).

Even if the employee signed the non-compete agreement at the outset of employment, the covenant will not be enforceable until the employee has worked for two consecutive years. In other words, employers cannot hire and fire within a week and expect that employee to be under an enforceable non-compete clause. The result is the same even if the employee resigns.

If more courts across the country adopt the notion that a non-compete covenant in an at-will employment relationship must be supported by more than the mere act of employment, non-competes, as they are now commonly utilized, will either be made extinct or become a compensation-driven topic. It may only be a matter of time before a non-compete covenant, at least among the skilled and professional classes, will be bargained for.

Massachusetts is a state with a significant tech community, and a state that currently enforces "reasonable" non-competes. A movement there is afoot, supported by the Massachusetts governor, to implement a statutory prohibition of non-compete covenants in the employment context. The movement cites California as a role model. From a recent labor hearing held to consider the legislation: "[W]e have heard examples of entrepreneurs at MIT who were advised to start their businesses outside of Massachusetts as a result of non-compete agreements laws."

In California, such employment covenants are prohibited, even if supported by separate, even meaningful, consideration. I can attest to a much greater mobility of labor and talent here in the California Bay Area and Silicon Valley than in the Route 128 corridor in Massachusetts. I have represented clients in California that wanted to hire engineering talent in Boston but couldn't because of binding non-compete clauses. I believe that California's non-compete prohibition continues to be a significant factor supporting the California tech community's vibrancy and pace of innovation (and I'm not alone in this assertion). This dynamicism in labor promotes a dynamicism in captial and vice versa, as engineers and other professionals are free to leave established companies in favor of startups.

On the other hand, if a well-funded tech startup is willing to pay former Google engineers two years of regular compensation for every year of a non-compete, as a perhaps extreme example, why shouldn't those talented engineers at least have a possibility of negotiating for that? Should such covenants be allowed if they are the product of true arms-length negotiations?

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