In October of 2009, the Illinois Court of Appeals for the Fourth District decided Sunbelt Rentals, Inc. v. Ehlers, 394 Ill. App. 3d 421 (4th Dist. 2009). In that opinion, the Court rejected the requirement that an employer must have a legitimate business interest in order to enforce a non-compete agreement — a requirement in Illinois Courts for decades. According to the Court in Sunbelt Rentals, an employer need only show that a non-compete agreement has a reasonable geographic limitation and lasts for a reasonable period of time in order to enforce that agreement. Since that decision, few courts have cited to Sunbelt Rentals and those that have cited to it have declined to squarely address whether it was correctly decided.
In December of 2010, however, the Illinois Court of Appeals for the Second District decided Reliable Fire Equipment Company v. Arredondo, et al., ___ Ill. App. 3d ____ (2d Dist. 2010). In that case, the Court directly addressed Sunbelt Rentals and ultimately rejected its analysis. According to the Court in Reliable Fire, restraints on trade have long been disfavored by the Courts and the “legitimate business interest test” remains an important “threshold question” which allows the Court to analyze “whether the employer has an interest other than suppression of ordinary competition.”
Additionally, the Court’s lead opinion acknowledged that prior decisions had generally recognized legitimate business interests in only two situations: 1) where the employer had near-permanent customer relationships and the employee would not have had contact with those customers but for his or her employment; or 2) where an employee was exposed to the employer’s confidential or trade secret information during his or her employment. However, that opinion went on to explain that limiting the analysis to whether the employer’s interest fell into one of those two categories “may be unduly restrictive. Other criteria may exist that warrant protection under the law beyond those enumerated in the two traditional prongs of the legitimate-business-interest test.” Consequently, the Court left the door open to recognize legitimate business interests beyond the two traditional situations.
Unfortunately, the significance of the lead opinion in Reliable Fire is muddled by a special concurrence and a dissent – both of which are more critical of the traditional formulation of the legitimate business interest test and both of which are open to a more flexible analysis of what constitutes a protectable business interest sufficient to warrant a non-compete. Indeed, as stated by the dissent, the decision in Reliable Fire “will serve only to confuse bench and bar and the employers and employees of Illinois.”
Illinois Courts follow the Appellate Courts in their district. As a result, now more than ever, employers must be cognizant of the different standards for enforcing non-compete agreements; they now differ from Chicago, to Chicago’s suburbs, to down-state Illinois.