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Illinois Appellate Court rules non-compete agreement in employment contract is unenforceable due to lack of consideration
Midwest Lending Corporation v. John Horton and PrimeLending Company (2023 IL App (3d) 220132) involved an employment agreement between John Horton and Midwest Lending. Horton received a $25,000 signing bonus when he signed the agreement. His contract contained a restrictive covenant including a non-solicitation clause that prevented him from
[D]irectly or indirectly employing, attempting to employ, recruiting or otherwise soliciting or inducing (or assisting others in soliciting, inducing or influencing) any employee, agent, or
consultant of the Company or its affiliates … to leave employment with the Company and/or to terminate his or her remunerative relationship with the Company …”
Seven months after Midwest hired Horton, he was terminated. Thereafter he began working for PrimeLending. Once at his new position, Horton solicited another Midwest employee to leave Midwest and to work at PrimeLending. Midwest then filed a breach of contract claim against Horton for violating the restrictive covenant.
The trial court dismissed the lawsuit, holding that there was no “consideration” for the non-solicitation agreement. Although Midwest alleged that Horton’s $25,000 signing bonus amounted to proper contractual consideration, the court ruled that there was no contract language stating the signing bonus “was specifically in exchange for the non-compete, non-solicitation agreement.”
Midwest appealed the trial court’s decision and the Illinois Appellate Court agreed with the trial court’s ruling. It cited other cases invalidating noncompete agreements when a contract “did not allege any additional consideration given to [the defendant] in exchange for him signing the noncompete clause” and when “no evidence was presented to establish with specificity what those benefits were or how they differed from the benefits [the worker] was already receiving.”
Midwest also argued that the description of the signing bonus in an offer letter Horton signed prior to signing his formal contract should be considered when determining the intent of the parties. The Appellate Court noted that Midwest’s contract contained an “integration provision” stating that
“[the Confidentiality and Non-Solicitation] Agreement constitutes the entire agreement between the parties, contains all of the agreements between the parties with respect to the subject matter hereof and supersedes any and all other agreements, either oral or written, between the parties with respect to the subject matter hereof.”
Therefore, the Court ruled that the contract terms expressly limited the intended scope of the Confidentiality and Non-Solicitation Agreement “to the subject matter hereof” and that Midwest’s argument that the two agreements should be read together “is contrary to the language the parties adopted in the integration provision.”
Because there was no evidence that the “signing bonus” in the offer letter provided adequate consideration for Horton’s later agreement to the nonsolicitation provision, the Appellate Court affirmed the trial court’s decision and dismissed the case.
Takeaway Points Regarding Non-Compete Agreements in Employment Contracts
- A valid contract requires an offer, acceptance, and consideration. Without all three, the contract is not enforceable. If you want to learn more about what constitutes a valid contract, see this post I wrote.
- In Illinois, a non-compete agreement in an employment contract requires adequate consideration to be enforceable.
- Integration clauses are often contained in contract “boilerplate” language, but they can have a significant effect on contract negotiations. With an integration clause, promises that were made before signing a contract – even if in writing – are not enforceable if they aren’t contained in the final agreement. An integration clause is sometimes called a “four corners clause” because it limits enforceability of terms to those contained within the “four corners” of the agreement.
- Certain aspects of non-compete agreements may soon be unenforceable as a matter of law after the March 2024 FTC ruling. To learn more about how that ruling could affect your contract, see this post.
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