Appeal from Circuit Court of Champaign County. No. 93L1394. Honorable John G. Townsend, Judge Presiding.
As Corrected December 12, 1995.
Honorable James A. Knecht, P.j., Honorable Frederick S. Green, J., Honorable Rita B. Garman, J., Concurring
The opinion of the court was delivered by: Knecht
PRESIDING JUSTICE KNECHT delivered the opinion of the court:
Plaintiff Debbie Abel, d/b/a Tidy House Cleaning Service (Tidy House), appeals the trial court's grant of defendant Debra Banghart Fox' motion to dismiss plaintiff's complaint. We reverse and remand.
Defendant, a former at-will employee of Tidy House, signed a covenant not to compete with Tidy House sometime during her employment with it in 1990. The covenant stated upon termination of her employment with Tidy House, she would not compete with it forthree years within a 75-mile radius of Busey Bank in Urbana, Illinois. The covenant also stated she would not make use of customer lists acquired by her during her employment with Tidy House. Apparently there was no written employment agreement other than the covenant.
In August 1993, the owner of Tidy House, Barbara Rotert, sold Tidy House to plaintiff. Of the $57,000 purchase price, $52,000 was for customers and goodwill, including assignment of the covenants not to compete between Tidy House and its employees. Shortly after the sale, defendant decided to terminate her employment with Tidy House. She began to solicit, in writing, Tidy House's customers to switch from Tidy House to her newly formed cleaning service. She did not cease this activity upon request by plaintiff, and plaintiff filed suit in November 1993. Count I of the complaint requested a temporary restraining order be issued against defendant prohibiting her from violating her covenant not to compete. Count II of the complaint requested a permanent injunction be issued granting the same relief. Count III requested damages caused by defendant's violation of the covenant.
The complaint was amended in May 1994 to clarify the allegation the covenant not to compete was included in plaintiff's purchase of Tidy House from Rotert. The defendant filed a motion to dismiss plaintiff's complaint, which the trial court denied in July 1994. The trial court ordered defendant to answer within 28 days.
In August, defendant filed a motion to reconsider the motion to dismiss plaintiff's complaint, referring the trial court to a recent first district case, Creative Entertainment, Inc. v. Lorenz (1994), 265 Ill. App. 3d 343, 638 N.E.2d 217, 202 Ill. Dec. 571. The trial court, in its written ruling, seems to have interpreted Creative Entertainment to stand for the proposition a covenant not to compete cannot be enforced unless there exists a written employment contract, or perhaps an oral employment contract specifying a length of time of the employment. The trial court then stated it did not agree with Creative Entertainment, but believed it was compelled to follow the holding in that case and granted defendant's motion to dismiss plaintiff's complaint. Plaintiff now appeals.
The law regarding restrictive covenants is for the most part well settled. A post-employment restrictive covenant is generally held to be enforceable if it is reasonable in geographic and temporal scope and it is necessary to protect a legitimate business interest of the employer. However, prior to analyzing the reasonableness of a covenant not to compete, a court must make two determinations. First, the court must find the covenant is ancillary to a "validcontract." The covenant must be subordinate to the contract's main purpose. Second, the court must determine whether there is adequate consideration to support the covenant not to compete. Continued employment constitutes adequate consideration for a post-employment covenant not to compete. Millard Maintenance Service Co. v. Bernero (1990), 207 Ill. App. 3d 736, 745, 566 N.E.2d 379, 384, 152 Ill. Dec. 692.
The parties agree on these general principles. The dispute hinges over the meaning of the phrase "ancillary to a valid contract." Creative Entertainment is the only modern Illinois opinion to address the requirement of ancillarity. There, the plaintiff sought to enforce a covenant not to compete signed by the defendant, a former at-will employee of the plaintiff. The defendant signed the covenant eight months after beginning work for the plaintiff. There were no written terms of employment other than the covenant. The defendant then continued to work for the plaintiff for approximately two years, whereupon he resigned and began to compete with the plaintiff, even soliciting the plaintiff's customers. The plaintiff brought suit, seeking to enforce the restrictive covenant signed by the defendant. The trial court ruled in favor of the defendant, and the plaintiff appealed.
The appellate court's decision in Creative Entertainment affirmed the trial court's ruling. The appellate court based its conclusion primarily on Mid-Town Petroleum, Inc. v. Gowen (1993), 243 Ill. App. 3d 63, 611 N.E.2d 1221, 183 Ill. Dec. 573. In Mid-Town Petroleum, the plaintiff sought to enforce a covenant not to compete signed by the defendant, a former employee. The defendant argued there was insufficient consideration to support the covenant, and the appellate court agreed. The court noted although the defendant had been employed with the plaintiff since 1977, he did not sign the covenant until 1991, and then continued to work for the plaintiff only seven months after the signing of the covenant. The court declared continued employment following the making of a covenant could constitute consideration for the employee's signing of the covenant, but the defendant's period of further employment was "insubstantial," and therefore did not constitute sufficient consideration to render the covenant enforceable. The court also distinguished the facts from several other cases where Illinois courts had held post-covenant employment for two, three, four, eight, or nine years constituted sufficient consideration to render the noncompetition covenants in those cases enforceable.
Despite the narrow and well-defined issue in Mid-Town Petroleum, Creative Entertainment noted only certain facts from that case, and then, without noting the actual issue involved there, concluded:
"We find Mid-Town stands for the proposition that where a defendant's employment is contingent upon signing a restrictivecovenant, without more, such evidence fails to establish the existence of an employment agreement. We therefore must agree with the trial court's determination in the instant case that plaintiff's restrictive covenant was a naked promise. It was not included as part of an employment agreement which set forth ...