In recent years, employers and employees have not had consistent guidance on when an Illinois court would enforce restrictive covenants. If an employer sued a former employee in Cook County, Ill., then the employer had to initially establish that the restrictive covenant was necessary to protect the employer's "legitimate business interest." On the contrary, if an employer sued a former employee in Marion County, Ill., then the employer merely had to show that its restrictive covenant was reasonable in time and scope.
On December 1, 2011, the Illinois Supreme Court's opinion in Reliable Fire Equipment Co. v. Arredondo (Case No. 111871) clarified that Illinois law.
Factual Summary of Case
In Reliable Fire Equipment Co. v. Arredondo, two former employees of Reliable Fire Equipment Company ("Reliable") executed an employment agreement that prohibited them from competing with the company for one year in Illinois, Indiana and Wisconsin. The circuit and appellate courts ruled the restrictive covenants were unenforceable. On appeal, the Illinois Supreme Court found that the lower courts applied the wrong standard.
What Is the Current Standard to Enforce Restrictive Covenants?
According to the Illinois Supreme Court, an employer must show that a restrictive covenant: (1) is ancillary to an employment relationship; (2) is no greater than required for the protection of a legitimate business interest of the employer; (3) does not impose undue hardship on the employee; and (4) is not injurious to the public.
The Illinois Supreme Court broadened the scope of what constitutes a legitimate business interest beyond the "near-permanent relationship with customers" or "protectable confidential information" that the appellate courts in Illinois had routinely required.
Instead, Illinois courts are required to consider and weigh the "totality of the circumstances" or particularized facts of each case:
In short, this ruling may broaden the circumstances in which an Illinois court will enforce reasonable restrictive covenants.
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