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Illinois Supreme Court Expands Scope of Covenants Not To Compete
Posted: December 14, 2011
The Supreme Court of Illinois recently issued its opinion addressing and clarifying several issues relating to the enforceability of noncompetition agreements in Illinois. This sets forth a standard that may result in employers facing a lighter burden to enforce such agreements against former employees.
On December 1, 2011, the court issued its opinion in Reliable Fire Equipment Company (Reliable) v. Arrendondo. In early 2004, Arnold Arredondo and Rene Garcia were seeking financing for High Rise Security Systems, LLC (High Rise). On April 26, 2004, High Rise was formed as a limited liability company with Arredondo and Garcia listed as managers. In August, Reliable's founder approached Arredondo and Garcia, both of whom had signed noncompetition restrictive covenants, and asked them separately if they were starting their own business. Each denied this was the case. Arredondo, however, resigned from Reliable on September 1 and one month later, Garcia was fired for suspicion of competition.
Reliable brought suit against the two former employees for breaching noncompetition agreements. Arredondo and Garcia responded with a counterclaim seeking a declaration that the covenants were unenforceable. The trial court found in favor of the former employees, concluding that the employer failed to prove the existence of a legitimate business interest.
After being denied a chance to appeal by the appellate court, the employer went to the Illinois Supreme Court. The supreme court reversed and remanded to the circuit court, finding that the lower court had applied an incorrect legal standard to the evidence presented.
The court criticized the structured formula that appellate courts had developed over the past 36 years to assess the legitimate business interest of the employer. In particular, the court rejected the notion that the only legitimate business interests protectable under Illinois law were: (1) trade secrets; (2) confidential information; and (3) "near-permanent" customer relationships. The court held that each case must be determined under its own particular facts and that "no factor carries any more weight than any other, but rather its importance will depend on the specific facts and circumstances of the individual case."
Want to know more? Read the full article by Darren Mungerson at Littler Mendelson