The Illinois Supreme Court recently clarified the law applicable to covenants not to compete in Illinois in the case of Reliable Fire Equipment Company v. Arredondo.
In Reliable, the Illinois Supreme Court clarified that to be enforceable, a non-compete agreement must be supported by a legitimate business interest, which is not strictly limited to the protection of confidential information or near-permanent customer relationships. Instead, Illinois trial courts are to consider the “totality of the facts and circumstances of the individual case” when assessing whether a legitimate business interest exists. The “totality of facts and circumstances can include, but is not limited to, an evaluation of near permanent customer relationships, the former employee’s access to confidential information, the number of years required to develop the customer, the amount of money invested to acquire customers, the degree of difficulty in acquiring customers, the extent of personal customer contact by the employer, the extent of the employer’s knowledge of its customers, the duration of customer association with the employer, the intent to retain employer-customer relations, and any other factors found in the common law.
To read a copy of the Court’s full opinion in Reliable, click here: http://www.state.il.us/court/opinions/supremecourt/2011/december/111871.pdf
The background facts in Reliable are as follows: Reliable installed and serviced portable fire extinguishers and fire suppression and alarm systems. Reliable sued two of its former salesmen, Arnold Arredondo and Rene Garcia , for allegedly breaching a non-compete agreement they had signed while employed at Reliable. Specifically, while Arredondo and Garcia were still employed by Reliable, they were also managers of another company called High Rise Security Systems, LLC (“High Rise”), which also sold fire alarm systems in the Chicago area.
In 2004, Arrendondo resigned from Reliable and Garcia was fired a few weeks later for suspected competitive activities. Reliable then sued Arredondo and Garcia alleging that they both violated non-compete agreements which prohibited them from competing with Reliable in Illinois, Indiana and Wisconsin during their employment and for one year after the termination of their employment. The non-compete agreements also prohibited the salesmen from soliciting any sales or referrals from Reliable customers or to solicit Reliable employees to leave their employment with Reliable. The salesmen argued that the non-compete agreements were unenforceable.
The trial judge ruled in favor of the salesmen, and declared the covenants unenforceable because they did not protect a legitimate business interest. The appellate court agreed and affirmed the decision of the trial court. However, the Illinois Supreme Court reversed, finding that the trial court had applied the wrong test to determine whether the non-compete agreements were enforceable. The Supreme Court ruled that non-compete agreements will be upheld if they are reasonable. The Court further ruled that a non-compete agreement is only reasonable 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.
Prior to the Supreme Court’s ruling in Reliable, the appellate courts in Illinois were divided on what factors to consider when deciding whether a non-compete agreement is enforceable. Historically, an employer trying to enforce a non-compete agreement had to prove that the agreement protected a legitimate business interest such as confidential information or near-permanent customer relationships. However, in 2009, the Appellate Court for the Fourth District, in Sunbelt Rentals v. Ehlers, held that a legitimate business interest is not necessary to enforce a non-compete agreement.
In Reliable, the Illinois Supreme Court “emphatically disagreed” with the Sunbelt decision, and declared that an enforceable non-compete agreement must be supported by a legitimate business interest. The Supreme Court further explained that a legitimate business interest is not strictly limited to protection of confidential information or near-permanent customer relationships. Instead, Illinois courts are to consider the “totality of the facts and circumstances of the individual case” when assessing whether a legitimate business interest exists. The “totality of facts and circumstances can include, but is not limited to, an evaluation of near permanent customer relationships, the former employee’s access to confidential information, the number of years required to develop the customer, the amount of money invested to acquire customers, the degree of difficulty in acquiring customers, the extent of personal customer contact by the employer, the extent of the employer’s knowledge of its customers, the duration of customer association with the employer, the intent to retain employer-customer relations, and any other factors found in the common law.
Non-compete agreements should be specifically tailored to fit the circumstance of each employer/employee relationship. The attorneys at DeBlasio Law Group, LLC are experienced in drafting and litigating non-compete agreements on behalf of both employers and employees in a broad range of industries. We can tailor an agreement that fits your unique circumstances. For more information, visit our website at www.DeBlasioLawGroup.com.
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