In Reliable Fire Equipment Company v. Arredondo, No. 111871, 2011 WL 6000743 (Ill. Dec. 1, 2011), a unanimous Illinois Supreme Court reaffirmed that Illinois courts must consider whether an employer has a legitimate business interest in need of protection when determining the enforceability of restrictive covenants, including non-competition agreements. The Court overruled recent Illinois appellate court decisions that failed to take an employer’s legitimate business interest into consideration when determining whether to enforce a non-competition agreement.

The Reliable decision rejected the rigid test developed by the Illinois appellate court over the past three decades, which did not consider an employer’s business interest in enforcing a restrictive covenant. Instead, the Court explained that the enforceability determination should be based on the totality of the facts and circumstances of the individual case, which may include (among other factors) the near-permanence of customer relationships, the employee’s acquisition of confidential information through his or her employment, and time and place restrictions. Moreover, the Court specified that all the factors carry equal weight, and that their relative significance will depend on the particular facts of the case.

Prior to this decision, two panels of the Illinois appellate court had refused to consider legitimate business interests, opting instead to look only at time and territory restrictions to determine the enforceability of a non-compete agreement. In rejecting this approach, the Supreme Court reaffirmed that Illinois courts must use a three-prong test when determining enforceability: (1) is the restrictive covenant no greater than required to protect the employer’s legitimate business interest; (2) does the restrictive covenant impose an undue hardship on the employee; and (3) does the restrictive covenant cause injury to the public interest?

This decision is significant as it clarifies the test to be used when determining the enforceability of restrictive covenants, and likely expands the enforceability of restrictive covenants by rejecting the rigid legitimate business interest test in favor of the more flexible totality of the facts-and-circumstances test.