Illinois Supreme Court Clarifies Law on Non-Compete Agreements

On December 1, 2011, the Illinois Supreme Court released its opinion in the case of Reliable Fire Equipment Company v. Arrendondo.  In this case, the state high court clarified the law concerning non-compete agreements.  These were the facts in the case.  Reliable Fire Equipment sells, installs and services fire extinguishers and fire and alarm systems.  In 1992, the company hired Rene Garcia as a salesman.  In 1998, it hired Arnold Arredondo as a salesman.  Both employees signed restrice covenants, or non-compete agreements, agreeing to not compete with the company for a period of one year following the termination of their employment from Reliable Fire.  The restriction extended to Illinois, Indiana and Wisconsin.  Both employees further agreed not to solicit the company's clients or solicit or induce the company's employees from leaving their employment during the restriction period.  In 2004, while Arredondo was still employed by Reliable Fire, he formed a company called High Rise Security Systems, LLC.  High Rise was a competitor to his employer.  Garcia also agreed to become employed by High Rise.  In August, 2004, Reliable Fire's CEO got wind of High Rise and questioned Arredondo and Garcia about the new company - both denied that the formed such an entity.  Arredondo resigned shortly thereafter, and the company later fired Garcia.  Reliable Fire a lawsuit against Arredondo, Garcia and High Rise alleging that they violated Reliable Fire's restrictive covenants.  The defendants filed a Counterclaim, contending that the agreements were unenforceable.  The trial court agreed, and the Illinois Appellate Court affirmed the decision.  The case wound up before the state's high court.  The supreme court stated that the agreements can be upheld if there is consideration to support the agreement, and if the restraints are reasonable.  To determine reasonableness, the court must look at: whether the restraints are necessary to enforce a legitimate business interest of the company, it cannot impose an undue hardship on the promisor or the public, and the scope of the restraint must otherwise be reasonable.  In clarifying the law, the high court held that whether a legitimate business interest exists will depend on the totality of the circumstances of the individual case.  The court overturned the appellate court ruling and sent the case back down to the trial court.
Categories: Employment Law