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relationship and the employee's acquisition of confidential information through his employment are determinative, is no longer valid.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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