Employment Restrictive Covenants
The issue of enforceability of employment restrictive covenants comes up often in business, including the business of commercial real estate.
A common scenario is as follows: A person goes to work for a company and is required to sign a Noncompetition and Nonsolicitation Agreement. Typically, it will say something like “during the term of employment, and for a period of one year after termination of employment, the employee will not compete with or solicit any customer or vendor of the employer.” Sometimes the Noncompetition/Nonsolicitation Agreement is required to be signed as a condition of being hired. Other times the employer will tell an employee who is already employed that signing the Noncompetition/Nonsolicitation Agreement is a condition to continued employment.
Are Employment Noncompetition/Nonsolicitation Agreements enforceable in Illinois?
As a general proposition, Noncompetition/Nonsolicitation Agreements are enforceable in Illinois, as long as they satisfy a three-pronged test: They: (1) must be no greater in scope and duration than is required for the protection of a legitimate business interest of the employer-promisee; (2) must not impose undue hardship on the employee-promisor, and (3) must not be injurious to the public.
In a decision filed December 1, 2011, the Illinois Supreme Court shook up the Illinois employment bar by overruling an extensive line of cases that had narrowed the three-pronged test described above to a two-pronged test created by Appellate Court decision in 1973. In a case referred to as the Kolar decision, (Nationwide Advertising Service, Inc. v. Kolar, 14 Ill. Ap. 3d 522 (1973), the Kolar court held that an employment restrictive covenant was valid if there were (i) a near permanent customer relationship with the employer, and (ii) the employee had gained confidential information through its employment. The Illinois Supreme Court emphasized in its December 2011 opinion that the Kolar test is not valid. (Reliable Fire Equipment Company vs. Arredondo 2011 IL 111871). The Illinois Supreme Court, instead, reaffirmed the legitimate business interest test, and clarified that “whether a legitimate business interest exists is based on the totality of the facts and circumstances of the individual case. Factors to be considered in the analysis include, but are not limited to, 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.”
For the most part, the Illinois employer’s bar hailed the Arrendondo decision as a victory, believing it gave employers a broader basis for enforcing employment restrictive covenants. Ironically, many attorney’s representing primarily employees were encouraged by the Arrendondo decision as well, believing it gives employees more room to challenge enforceability by challenging, factually, whether a “legitimate business interest” is at stake.
“Little Known” Two-Year Rule for Employment Restrictive Covenants – Illinois
While the foregoing is all well and good, a fundamental concept of law is that employment (more…)