Illinois Supreme Court Upholds Noncompetition Agreements

RELIABLE FIRE EQUIPMENT COMPANY v. Arredondo, Ill: Supreme Court 2011 - Google Scholar:

This case was recently decided by the Illinois Supreme Court to "correct" a misconception that Illinois no longer recognizes that a noncompetition agreement must support a legitimate business interest of the employer.

The Court described the three-prong test as follows: "¶ 17 "The modern, prevailing common-law standard of reasonableness for employee agreements not to compete applies a three-pronged test." BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1223 (N.Y. 1999). A restrictive covenant, assuming it is ancillary to a valid employment relationship, 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. Id.;Restatement (Second) of Contracts § 187 cmt. b, § 188(1) & cmts. a, b, c (1981).^[2] Further, the extent of the employer's legitimate business interest may be limited by type of activity, geographical area, and time. Restatement (Second) of Contracts § 188 cmt. d (1981). This court long ago established the three-dimensional rule of reason in Illinois and has repeatedly acknowledged the requirement of the promisee's legitimate business interest down to the present day."

The Court explained that Illinois recognizes the legitimate business interest test. It noted: "¶ 43 In sum, 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. However, the two-factor test created in Kolar, in which a near-permanent customer relationship and the employee's acquisition of confidential information through his employment are determinative, is no longer valid. Rather, we adopt the position of Justice Hudson's special concurrence, which is: 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 this 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."

The court then remanded the case to the Circuit Court to allow that court to apply the proper test.

Comment: it appears that this opinion resolves a debate in the caselaw concerning the legitimate business interest test. Although it is far from certain, considering the legitimate business interest of the employer would appear to strengthen the employer's ability to enforce a reasonable noncompetition agreement.

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Illinois Company Held Liable For Agent Who Wrongfully Obtained Employee's Phone Records

Lawlor v. North American Corp. of Illinois, 949 NE 2d 155 - Ill: Appellate Court, 1st Dist., 4th Div. 2011 - Google Scholar:

This is an Illinois case in which the plaintiff, Kathleen Lawlor, obtained an award of compensatory and punitive damages against her former employer.

The court characterized Lawlor's claim as follows: "The parties engaged in four years of bruising discovery, but the testimony at the six-day trial was relatively uncomplicated. Lawlor was aggrieved that North American, through surreptitious means, acquired her mobile and home phone records in a failed effort to prove that she breached the company's noncompetition agreement. Painted with a broad brush, Lawlor presented evidence at trial to the effect that North American, through counsel and at least two independent investigators, set about the tasks of personal surveillance and getting her private phone records."

Again the bad conduct of the defendant supported the Appellate Court's decision to reinstate the punitive damages award of $1.75 million.

The court wrote: "Here, we conclude that the jury's award of $1.75 million was reasonable given North American's reprehensible conduct. The nature and the inappropriateness of the intrusive conduct in meddling with plaintiff's personal records was sufficiently malevolent to warrant punitive damages, especially considering that North American on multiple occasions, over a five-month period, specifically utilized the wrongfully obtained phone records. While several of its officers and employees testified that they were unaware of the methodology of how the records were obtained and whether unethical or illegal means were utilized, North American points to no evidence showing it was uncomfortable with the receipt or the use of this private information. To the contrary, North American employees testified that they had no hesitancy in using the phone records and that they never inquired how they were obtained. In terms of the size of the award, the jury heard that North American's net worth was approximately $50 million. It can scarcely be argued that the amount awarded by the jury was egregiously high, given both the nature of the conduct and the extent of defendant's net worth."

Edward X. Clinton, Jr.

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