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Shearer & Agrella Blog

Covenant Not To Compete

Often when a new employee, especially a salesman, is hired, he or she is requested to sign a Covenant not to Compete. A Covenant not to Compete is a contract between the employee and employer whereby the employee agrees that should he leave, he will not pursue a similar profession or trade in competition against the employer, not do business with the employer’s customers, or attempt to hire away other employees.

In order to get the job, the employee will usually sign anything. But, when the employee receives a better offer from a competitor the issue arises whether the Covenant not to Compete can prohibit him from taking the job.

In December of 2011, in the case of Reliable Fire Equipment Company v. Arredondo, the Illinois Supreme Court set forth a new test to apply when determining the enforceability of a Covenant not to Compete.

The new test has three prongs, namely: (1)the covenant can not be greater than is required for the protection of legitimate business interests of the employer; (2) does not impose undo hardship on the employee; and (3) is not injurious to the public.

Presuming the Covenant not to Compete is in writing and supported by consideration, which it must be to he enforceable, the issue usually comes down to the first prong of the test, that is, is the Covenant required to protect the legitimate business interest of the employer.

If you have previously come across this issue, you have probably been told that the covenant must be reasonable in terms of how long it lasts and geographic limitations and that in order to show a legitimate business interest, the employer had to prove that the employee through his employment obtained confidential information that would not be available from other sources, or that by the nature of the business, the customer relationship was “near permanent.” Then there were tests to determine if the employer had a near permanent relationship with its customers.

In Reliable Fire Equipment Company, the Supreme Court did away with all of those tests. Now whether the employer has a legitimate business is dependent on the “totality of the circumstances.” Therefore, a trial court will consider whatever evidence the attorneys provide it with and then decide whether the covenant protects a legitimate business interest_ That doesn’t mean that such things as time limitations, geographic scope, the confidentiality of the information, the relationship between the employer and the customer, is not important, it just means that everything is now important and each case will now be decided on an ad hoc basis.