On December 1, 2011, the Illinois Supreme Court issued its opinion in Reliable Fire Equip. Co. v. Arredondo, 2011 IL 111871 (Ill. Dec. 1, 2011), which is likely to make it easier for companies to enforce non-compete agreements, thereby complicating transitions by executives. Reliable, which sells fire extinguishers and alarms, had sued two sales agents who signed non-compete agreements and then joined a startup firm in 2004. The Illinois Supreme Court reversed both the circuit court and appellate court decisions that went against Reliable and returned the case to DuPage County Circuit Court for further proceedings. In doing so, the Illinois Supreme Court overruled recent case law from the Illinois Appellate Court that attempted to refine the law governing employer-employee covenants not to compete.

Reviewing the law and not the evidence in the case, the Illinois Supreme Court said that restrictive covenants in employment agreements are enforceable if they are supported by consideration and are reasonable. Whether a restrictive covenant is reasonable is determined using a three part test: (1) the restraint must be necessary to protect the legitimate business interest of the employer-promissee; (2) it must not impose an undue hardship on the employee-promisor; and (3) it must not be injurious to the public.

Recent appellate court decisions had questioned whether the legitimate business interest inquiry was ever a prong of the reasonableness test to begin with, holding that the reasonableness of a restrictive covenant should be based only on its time and territory restrictions. The Illinois Supreme Court expressly overruled these decisions in continuing to recognize the legitimate business interest of the employer-promissee as a component of the three-prong reasonableness test. The court then clarified the proper standard for evaluating the legitimate business interest prong -- whether a legitimate business interest exists depends on the totality of the circumstances of the individual case and not simply whether certain factors are present, such as the employee’s acquisition of confidential information through his or her employment, and the near-permanency of an employer’s customer relationships. Such factors aid the analysis but none carries more weight than any other, and their importance will depend on the specific facts and circumstances of each case.