Reliable Fire Equipment Co. v. Arrendo

The Illinois Appellate Court recently declined to adopt a bright line rule regarding the enforceability of five year non-competes or three year non-solicits, and instead directed courts to interpret the reasonableness of any such restrictive covenants on a case-by-case basis.

In Pam’s Acad. of Dance/Forte Arts Ctr. v. Marik, 2018 IL App (3d) 170803, the plaintiff dance company sued a former employee for breaching a non-disclosure agreement and restrictive covenant by allegedly opening a dance studio within 25 miles of plaintiff and soliciting students and teachers by means of an “improperly obtained” customer list. Following a split resolution on a motion to dismiss, the trial court certified two questions for appellate review, including the one pertinent to readers of this blog: whether a post-employment non-compete lasting five years or a post-employment customer/co-worker non-solicit lasting three years is per se unenforceable as a matter of Illinois law?

Notwithstanding the facial over-length of these restrictions, the Illinois Appellate Court declined to find that three or five year restrictive covenants were de facto unenforceable. Instead, the Court reiterated the need for the trial court to consider the totality of the circumstances, explaining that “the reasonableness of the restrictive covenant at issue here requires the resolution of a number of facts” – facts to be resolved at the trial court level.

While the court’s ruling suggests that temporal restrictions of three or five years may, in appropriate circumstances, be permissible, practical experience and other Illinois cases indicate the need for employers to narrowly tailor restrictive covenants, including temporal restrictions. To avoid challenges to the overbreadth of a restrictive covenant, employers should adhere to the standards set forth in the Illinois Supreme Court’s seminal decision, Reliable Fire Equipment Co. v. Arrendo, in which the Court held that a restrictive covenant is only enforceable if it: (1) is no greater than required for the protection of a legitimate business interest of the employer-promisee; (2) does not impose undue hardship on the employee-promisor; and (3) is not injurious to the public.