The November 2009 issue of the Litigation & Counseling Alert examined the ways that a company can protect its business by using non-compete and non-solicitation agreements despite the various myths surrounding them. One of those longstanding myths is that such an agreement will almost always be enforced, as long as it is generally reasonable as to time and territory. As the earlier article was being completed, however, an Illinois court was attempting to turn myth into reality.

In Sunbelt Rentals, Inc. v. Ehlers, a Fourth District Illinois Appellate Court swept away more than three decades of Illinois jurisprudence (including prior decisions rendered by the very same district) when it held that a non-compete agreement does not require a "legitimate business interest" in order to be valid. Rather, according to the Sunbelt court, any non-compete agreement can be enforced as long as it is reasonable as to time and territory. In reaching this decision, the court maintained that prior decisions to the contrary had all misinterpreted Illinois Supreme Court precedent and that for the last 30 years the Illinois Appellate Courts had been wrong.

For the moment, this decision has limited effect statewide. It is binding precedent only on courts that hear cases in the Fourth Judicial District, which encompasses the middle counties of Illinois, ranging from Livingston County on the north to Jersey County on the south. That does not include either Cook County or the surrounding collar counties. It remains to be seen whether any other districts will choose to follow the Sunbelt decision. If they do, Illinois will become one of the easiest states in the country in which to enforce a non-compete agreement.

Since Illinois currently is viewed as somewhat hostile to the enforcement of non-compete agreements, that would obviously represent a substantial change in the law. For example, if the Sunbelt decision were to become law statewide, an employer could, at least theoretically, bind any employee (from a receptionist to an assembly line worker to a file clerk) to a valid non-compete, provided that the time and territory restrictions were reasonable. Of course, what would be considered reasonable in such a case would be difficult to ascertain since there are currently no criteria against which to measure reasonableness.

Implications for Illinois Employers

So what are the implications for employers in Illinois today? For the time being, if a business has a non-compete that is going to be litigated in the Fourth District, then Sunbelt applies and the employer's chances of having that agreement enforced are greatly enhanced. But whether the Sunbelt decision will remain the law even in the Fourth District is unclear. As has happened before with respect to another issue regarding non-competes (whether they had to be ancillary to a written employment agreement), another Fourth District panel might take a contrary position, making the question even murkier. Eventually, the Illinois Supreme Court will have to decide this issue.

Given this level of uncertainty, companies should not immediately rewrite their non-compete agreements. This is especially true if future cases are more likely to be litigated outside of the Fourth District in a court that is not bound by Sunbelt. On the other hand, the Sunbelt decision does, at least for now, give companies ammunition in any dispute they might have with an employee who may be in breach of a non-compete or non-solicitation agreement. The mere existence of such a pro-employer decision provides additional leverage in any negotiations.

Ultimately, only one thing is certain: The Sunbelt case is sure to cause a stir in the non-compete area, and other districts will have to address the issue. Much Shelist will keep a close eye on future developments and will bring them to your attention as soon as they occur.