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Illinois Supreme Court Affirms Legitimate Business Interest Factor

For purposes of determining whether a contract not to compete is enforceable, Illinois courts must consider the legitimate business interests of the former employer, the Illinois Supreme Court found.

The court said that in determining whether a legitimate business interest exists, judges must look to the “totality of the facts and circumstances of the individual case.”  As part of the review, judges must consider “the near-permanence of customer relationships, the employee’s acquisition of confidential information through his employment, and time and place restrictions.  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.”

The Illinois Supreme Court rejected the holdings in two separate appellate court cases that questioned whether Illinois recognized the legitimate business interest factor as a requirement of an enforceable restrictive covenant not to compete. “Two panels of our appellate court have questioned whether Illinois recognizes the legitimate business interest of the promise as a requirement of an enforceable restrictive covenant.  We now take the opportunity to correct this misconception,” the opinion states.

In its ruling, the Supreme Court said “the legitimate business interest test is still a viable test to be employed as part of the three-prong rule of reason to determine the enforceability of a restrictive covenant not to compete.”  The three prongs of the rule are (1) the covenant must be no greater than is required to protect the legitimate business interest of the employer, (2) it does not impose undue hardship on the employee, and (3) it is not injurious to the public.

Reliable Fire Equipment Company v. Arrendondo, Ill. S. Ct. No. 111871, issued Dec. 1, 2011.

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