Legal Update on Non-compete Agreements in Illinois

Legal Update on Non-compete Agreements in Illinois

By: Jakub Piechnik, Attorney, Cole Sadkin, LLC

Every business has money-making ideas and information they would like to protect from their competitors. With high rates of employee turnover this becomes an even bigger issue as businesses try to prohibit their employees from taking this important information with them when they leave. The question business owners ask is “How can I protect my information from being taken?” The answer is the non-compete agreement which, if enforceable, will serve to protect your important business information.

On December 1, 2011, the Illinois Supreme Court clarified and broadened the enforceability of non-compete agreements in Reliable Fire Equipment Comp. v. Arnold Arredondo. Docket No. IL 111871 (Dec. 1, 2011). The Court held that, when considering the enforceability of non-compete agreements, a court should look at the totality of the circumstances surrounding the agreement to determine whether it protects a legitimate business interest.  Prior to this determination there was much confusion in the Illinois Courts regarding how to handle non-compete agreements. Specifically, the Reliable decision rejects the previous Illinois Appellate Court holding in Nationwide Advertising Service, Inc. v. Kolar where the Court held that there are only two legitimate interests that are protectable: confidential information the employee acquired through his employment and subsequently tried to use for his own benefit and an employer’s near-permanent relationship with its customers when, but for the association with the employer, the former employee would never have had contact with its customers in question. 28 Ill. App. 3d 671, 673 (1975).

 In Reliable, the court ruled that the specific non-compete agreement at issue prohibiting the salesmen from competing in Illinois, Indiana and Wisconsin for one year after their termination was unenforceable because Reliable failed to identify a “legitimate business interest” they were protecting. In doing so Justice Charles Freeman reiterated the standard for a restrictive covenant: “A restrictive covenant, assuming it is ancillary to a valid employment relationship, is reasonable only if the covenant: (1) is no greater than is required for the protection of a legitimate business interest of the employer-promisee; (2) does not impose undue hardship on the employee-promisor, and (3) is not injurious to the public.” Id. Justice Freeman went on to restate that “whether a legitimate business interest exists is based on the totality of the facts and circumstances of the individual case.” Id. When looking at the totality of the circumstances, factors that are to be considered in such an analysis include, but are not limited to: “the near-permanence of customer relationships; the employee’s acquisition of confidential information through his employment; and time and place restrictions.” Id. No single factor is more important than any other and must be considered in conjunction with all other factors.

The Court’s decision in Reliable will result in Illinois Courts upholding more non-compete agreements than they have in the past. However, while the Reliable decision serves to clarify the state of non-compete agreements in Illinois, its broader applicability presents many questions that will likely be asked, and hopefully answered, soon. Is an employer’s reputation and goodwill a protectable business interest? What are all the factors that are to be considered? Are there any factors which would destroy or inhibit an employer’s protectable business interest? These are the questions that Illinois Courts, and business owners, will face in the near future.  

Jakub Piechnik graduated from the Earle Mack School of Law at Drexel University in December 2011 and was admitted to the Illinois State Bar Association in 2012. His studies included areas of international law while studying abroad with the Temple University Rome program. Jakub graduated from the University of Illinois in Champaign-Urbana with a B.S. in Recreation, Sports and Tourism. Jakub speaks Polish fluently and is invaluable in assisting Polish clients.