Are Non-Compete Agreements Legal in Illinois?
A Hoffman Estates Attorney Explains
Though non-compete agreements have been in use for decades, within the past two years they have come under particular scrutiny in Illinois due to the ruling given in Reliable Fire Equip. Co. v. Arredondo (2011 IL 111871). As a result, there have been significant changes in the laws governing Illinois non-compete covenants.
The title of the post asks if non-compete covenants (commonly referred to as CNCs) are still legal in Illinois. The short answer is yes, they are still legal in the state. The long answer requires taking a closer look at the details and outcome of Reliable v. Arredondo, an employment lawsuit involving claims of non-compete violations.
Arnold Arredondo and Rene Garcia were hired as sales employees for the Reliable Fire Equipment Company, a vendor of fire extinguishers and safety equipment. They signed a CNC agreeing not to compete with Reliable in Illinois, Iowa or Wisconsin during the course of their employment, or for a year after the termination of their employment. However, Arredondo resigned from Reliable to start his own fire extinguisher sales company (High Rise Security Systems), and Garcia was soon fired from Reliable on suspicions of competitive activity. Reliable soon filed a complaint against the newly-formed High Rise on account of an alleged violation of a covenant to not compete. The case eventually went to the Illinois Supreme Court, which delivered a verdict in Arredondo’s favor. The ruling specified that:
“A restrictive covenant… 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.”
The ultimate lesson from Reliable is that CNCs must indicate a protectable interest that is at stake if the agreement is to be legally enforceable. A “protectable interest,” in this context, is a highly subjective qualification that can only be established within the given circumstances of a case. The “three-pronged” test—confidential information, near-permanent relationships and geographic restrictions—does come into consideration during the examination, but there are no criteria that will unequivocally establish a “protectable interest” in every case.
It would seem that a CNC will not be upheld in Illinois simply because it is signed. The actions of the Supreme Court seem to suggest that employers should not treat a CNC as a one-size-fits-all agreement; rather, it would be much more pragmatic to have an individual agreement drafted for every employee pursuant to his or her role within your company. Our Hoffman Estates lawyers can help you write an enforceable and legally binding CNC that will ensure you can protect your business’s valuable information.