Enforcing Non-Compete Agreements: Go Where the Case Law Is
Those of us who have been around a while likely remember the Ronald Reagan/Jimmy Carter presidential debates. In response to something that President Carter said, candidate Ronald Reagan replied, in his easy going and avuncular manner, "There you go again, Jimmy." It drew much laughter and perhaps helped secure the presidency for Reagan.
I was reminded of that line when reviewing a recent case by the Fourth District of Illinois upholding an employee restrictive covenant. You might all remember the Fourth District. It is the district that gave us the Sunbelt case, which tried to overturn 30 years of Illinois jurisprudence by claiming that non-compete and non-solicitation agreements did not have to be based on a legitimate business interest. Rather, said the Fourth District, such agreements merely had to be reasonable in scope. The Illinois Supreme Court disagreed, finding that our state does indeed require a legitimate business interest, although that interest is determined by the "totality of the circumstances." That was the Reliable decision, and it specifically rejected the rationale of Sunbelt.
But in a recent case, the Fourth District, while giving lip service to Reliable, embraced the totality of the circumstances test in such a way that a reader might think the Illinois Supreme Court had actually upheld Sunbelt. My response, "There you go again, Fourth District."
In Zabaneh Franchises v. Walker, the Fourth District upheld the enforceability of a restrictive covenant under the totality of the circumstances test even though the employee had only been working for 104 days. Prior to this decision, the Illinois courts have been fairly clear that, when employment was the sole consideration for the restrictive covenant, at least two years of employment were necessary. (See the related article that appeared in the August 2011 Litigation & Counseling Alert.) But the Fourth District did not even discuss adequate consideration, a necessary element under the Reliable decision. Rather, it swept that issue under the "totality of the circumstances" rug and found that the agreement was enforceable.
It would be interesting to see if the defendant seeks an appeal before the Illinois Supreme Court on this case. It would certainly be helpful to have Illinois' highest court address the issue of consideration, something that the Fourth District refused to do. In the meantime, most other districts in Illinois generally require at least two years for employment to be considered adequate consideration. Moreover, given the Fourth District's rather cursory analysis of the "totality of the circumstances" test, it also appears that the Fourth District is doing a little more than applying its old Sunbelt reasonableness test.
So, if you are an Illinois employer that wants to enforce a non-compete that is at least facially reasonable in terms of time and territory, we suggest that you try to find a way to file suit in the Fourth District. Until the Illinois Supreme Court speaks again, that is clearly the best place for employers to litigate these issues.