Illinois Supreme Court Clears Way for Enforcement of Non-Competes

In Reliable Fire Equipment Company v. Arredondo, 2011 Il. 111871, an opinion released on December 1, 2011, the Illinois Supreme Court clarified the proper standard for evaluating the enforceability of a post-employment restrictive covenants. The Supreme Court said that restrictive covenants in employment agreements are enforceable so long as consideration supports the agreements and the agreements are reasonable. The test for reasonableness requires the application of the following three-pronged analysis:

  1. The restraint must be necessary to protect the legitimate business interest of the promissee;
  2. It must not impose an undue hardship on the promissor or the public; and
  3. The scope of the restraint must be otherwise reasonable.

Although the three-pronged test for reasonableness of a post-employment restrictive covenant dates back to 1896, the Supreme Court clarified the test in two important ways. First, the Supreme Court expressly overruled two recent Appellate Court opinions that considered only time and territory restrictions to determine the reasonableness of the restrictive covenants at issue and clarified that the test for reasonableness still includes the legitimate business interest prong. Second, the Supreme Court rejected a prior Appellate Court finding that the legitimate business interest prong could only be satisfied where the employee acquired confidential information through their employment and the employer has near-permanent relationships with its customers and further held that whether a legitimate business interest exists will depend on the totality of the circumstances of the individual case.

It is expected that this ruling by the Supreme Court will lead to greater enforceability of restrictive covenants.

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