Client Alert - Employment Law Update
Illinois Supreme Court Clarifies Requirements for Enforcing Non-Compete Agreements in Illinois
The Illinois Supreme Court recently issued a ruling, broadening the enforceability of non-compete agreements.
The case of Reliable Fire Equipment Company v. Arredondo, 2011 IL 111871 (December 3, 2011) began when Reliable Fire filed suit to enforce non-compete agreements after two former sales employees went to work for a competitor. Following a bench trial, the court concluded that Reliable Fire had not proved the existence of a legitimate business interest necessary to enforce the agreements. An appellate court affirmed the decision, and Reliable Fire appealed to the Illinois Supreme Court.
The Legitimate Business Interest Test
Courts in Illinois have long held that a legitimate business interest was a prerequisite to an enforceable non-compete agreement. Historically, there were only two ways to establish a legitimate business interest: (1) by showing that an employer had "near permanent" relationships with its customers; or (2) by showing that an employee had acquired confidential information through his or her employment, and was attempting to use it against the employer. However, as described in an earlier Client Alert, one of Illinois' appellate courts abandoned the legitimate business interest requirement, focusing solely on whether the non-compete's terms were reasonable. Other courts continued to abide by the test.
The Illinois Supreme Court's Decision
The Supreme Court declared that the legitimate business interest requirement remains. However, it went further, holding that a protectable interest is not limited to confidential information or near-permanent relationships. Now, the existence of such an interest depends on "the totality of the circumstances." In addition to considering the two historical factors, courts may now also evaluate the time and place restrictions of a covenant; although, none of these factors carries more weight than the others. Ultimately, the enforceability of a non-compete will depend on the unique facts of each case.
What to Do
In light of the new standards announced, employers should reevaluate their existing and potential future uses of non-compete agreements. When carefully drafted, these agreements can be invaluable tools in protecting business assets. Properly identifying business interests to support restrictive covenants will be key to fully realizing the benefits allowed by current law.
If you would like more information about this decision, or have questions about your employment policies and practices in general, please contact Mr. Gonzalez at 312-558-9779 or at egonzalez@elvisgonzalezltd.com.
|
|