Supreme Court Summaries

Opinions filed December 1, 2011

Reliable Fire Equipment Company v. Arredondo, 2011 IL 111871

Appellate citation: 405 Ill. App. 3d 708.

JUSTICE FREEMAN delivered the judgment of the court, with opinion.

Chief Justice Kilbride and Justices Thomas, Garman, Karmeier, Burke, and Theis concurred in the judgment and opinion.

Plaintiff Reliable Fire Equipment Company of Alsip sells, installs and services portable fire extinguishers and fire suppression and alarm systems. In 2004, one of its salesmen resigned and another was fired. They formed their own company, High Rise Security Systems. All three of the latter are defendants in this suit, which Reliable filed in the circuit court of Du Page County in 2004. As to the claims which went to jury trial, Reliable was not successful, but those claims are not at issue here.

This appeal involves defendants' counterclaim, which sought a declaratory judgment that a noncompetition restrictive covenant signed by each salesman was unenforceable. A bench trial was conducted on this issue, and the covenant was held unenforceable for failure to prove the existence of a legitimate business interest justifying enforcement. The appellate court affirmed.

In this decision, the supreme court said that the issue presented for review is not whether the circuit court's order is supported by sufficient evidence, but whether the circuit court applied the correct legal test to the evidence presented.

The supreme court stated that it is well established in Illinois that employee agreements not to compete will be upheld if they are reasonable. There is a three-part test for reasonableness that asks whether the covenant is no greater than is required to protect the legitimate business interest of the employer-promisee, whether no undue hardship is imposed on the employee, and whether there is no injury to the public. The court characterized this test as a "three dimensional rule of reason," of which the legitimate business interest of the employer is an element.

The supreme court said that the three-prong test of reasonableness is unstructured, with no inflexible formula. Whether an employer has a legitimate business interest in asking an employee to sign an agreement not to compete after leaving employment is still a viable test to be used as part of the three-prong rule of reason for determining the enforceability of such an agreement from the totality of the circumstances, based on the facts of each case. Here, the inquiry in the circuit court focused on rigid and preclusive tests as to legitimate business interests. The circuit court should have looked to the totality of the facts and circumstances to determine the reasonableness of the agreements.

The circuit court's judgment was reversed and the cause was remanded to it for proceedings in light of these principles. Additional evidence and argument could be presented. The appellate court's judgment was also reversed.