Reliable Fire Equipment Company v. Arnold Arredondo et al.

Summary

The Illinois Supreme Court addresses the enforceability of employee noncompetition restrictive covenants. It holds that reasonableness is determined under a three-prong totality-of-the-circumstances test, including whether the restraint is no greater than necessary to protect the employer’s legitimate business interest, whether it imposes undue hardship on the employee, and whether it injures the public. The court overrules contrary appellate decisions, reverses the lower-court judgments, and remands for further proceedings.

Holdings

1. When the appeal concerns whether the circuit court applied the correct legal test to the evidence, the issue is one of law reviewed de novo rather than under the manifest-weight standard.
2. An employee restrictive covenant, assuming it is ancillary to a valid employment relationship, is reasonable only if it is no greater than necessary to protect a legitimate business interest of the employer, does not impose undue hardship on the employee, and is not injurious to the public.
3. Whether an employer has a legitimate business interest supporting a restrictive covenant must be determined from the totality of the facts and circumstances of the individual case; relevant factors are nonconclusive, none has predetermined weight, and the listed factors are not exclusive.
4. The two-factor test created in Kolar, under which a near-permanent customer relationship and employee acquisition of confidential information were determinative of a legitimate business interest, is no longer valid.
5. When a case is tried under an incorrect legal theory, the appropriate remedy is to reverse and remand for further proceedings, including an opportunity to supplement the existing record with evidence and argument addressing the totality of the circumstances.

Questions Presented

1. Whether the enforceability of the postemployment restrictive covenants was reviewed de novo because the circuit court applied an allegedly incorrect legal test.
2. Whether Illinois continues to require consideration of the employer's legitimate business interest as part of the three-prong rule of reason governing employee noncompetition covenants.
3. Whether the legitimate business interest inquiry is governed by rigid, conclusive factors such as the two-factor test articulated in Nationwide Advertising Service, Inc. v. Kolar, or by the totality of the circumstances.
4. Whether reversal and remand were required because the case was tried under an incorrect legal theory.

Disposition

reversed_and_remanded