Ill.: Court Refuse to Enforce Noncompetition Agreement

By SHRM Online staff Jan 23, 2015

A state appellate court refused to grant injunctive relief to an employer seeking to enforce a noncompetition agreement against a former employee. The court concluded that the employer had not provided sufficient consideration to uphold the agreement because the employee had not worked for her former employer for at least two years.

Prairie Rheumatology Associates (PRA) is a medical practice that offers rheumatology services in Joliet, Ill.. Dr. Maria Sosenko, a licensed physician who has been practicing as a rheumatologist, is the sole shareholder and president of PRA. Dr. Maria Francis, is also a licensed physician specializing in rheumatology. On Jan. 7, 2012, she entered a "Physician Agreement" with PRA with an effective date of April 9, 2012. The employment agreement included a two-year, 14-mile noncompetition agreement in favor of PRA.

Francis began her employment with PRA on April 16, 2012, but in July 2013, Francis gave notice that she was voluntarily terminating her employment with PRA effective Nov. 22, 2013. Francis indicated that she would honor the noncompetition agreement in her employment contract and informed PRA that she would be providing rheumatology services to patients at Hinsdale Orthopedics, a medical group with offices located in Hinsdale, Ill., and New Lenox, Ill.

On Jan. 3, 2014, Francis began performing services as a rheumatologist at Hinsdale Orthopedics New Lenox office, which is nine miles from PRAs principal office. She also provided services at the Hinsdale office, which is not within the restricted area. PRA filed a complaint for injunctive relief to enforce the restrictive covenant prohibiting Francis from practicing within a 14-mile radius of the office and the hospitals for two years after termination of her employment.

The trial court granted PRA’s request, enjoining Francis from treating PRAs current patients but allowing her to treat patients she had prior to joining PRA as well as potential future patients. In its written order, the court first determined that the restrictive covenant was ancillary to the main employment contract and was supported by adequate consideration. It then held that the restrictive covenant was reasonable as to PRA's current patients but unreasonable as to PRAs future patients and the public in general. The court concluded that PRA had a right in need of protection, would suffer irreparable harm, had no adequate legal remedy and had established a likelihood of success on the merits only as to its current patients and entered a limited injunction following that analysis.

PRA appealed, arguing that the trial court abused its discretion in declining to enforce the restrictive covenant as to the general public and potential future clients. Francis cross-appealed, claiming that the trial court's order to enforce the restrictive covenant should be reversed because the noncompete agreement lacked adequate consideration.

Under Illinois law, a post-employment restrictive covenant is enforceable only if it is reasonable in geographic and temporal scope and it is necessary to protect an employers legitimate business interest. The prevailing standard of reasonableness for an agreement not to compete applies a three-part test. A restrictive covenant is reasonable only if the covenant (1) is no greater than is required for the protection of a legitimate business interest of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public.

Before analyzing the reasonableness of a restrictive covenant, however, a court must make two determinations. First, the court must find that the covenant is ancillary to either a valid transaction or a valid relationship. Second, the court must determine whether there is adequate consideration to support the covenant.

The appellate court found there was insufficient consideration to uphold the convent. Illinois courts have generally held that two years or more of continued employment constitutes adequate consideration. This rule is maintained even if the employee resigns on his or her own instead of being terminated. Without adequate consideration, the restrictive covenant is unenforceable. Francis resigned after 15 months with PRA and officially left the practice after being employed for 19 months, which is five months less than the general two-year rule of thumb that supports adequate consideration.

PRA argues that Francis received additional consideration in the employment agreement that supports enforcement of the restrictive covenant. PRA claims that in addition to her continued employment, Francis received PRA's assistance in obtaining hospital membership and staff privileges, access to previously unknown referral sources and opportunities for expedited advancement. However, the appellate court found that Francis received “little or no additional benefit” from PRA in exchange for her agreement not to compete. The court ruled that because PRA failed to provide adequate consideration, the restrictive covenant was unenforceable and PRA was unable to show a likelihood of prevailing on the merits.

Prairie Rheumatology Assocs., S.C. v. Francis, Ill. App. Ct., No. 140338, (Dec. 11, 2014).


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