We previously reported that, on September 23, 2009, an Illinois court in the Sunbelt Rentals case rejected the "legitimate business interest" test for enforceability of restrictive covenants in Illinois. That test essentially required an employer seeking to enforce a restrictive covenant, such as a noncompetition or nonsolicitation (of customers) provision, to show that it had a legitimate business interest to protect. A legitimate business interest exists when: (1) because of the nature of the business, the employer’s customer relationships are near permanent and the employee would not have had contact with the customer absent the employee’s employment, and (2) the employee gained confidential information through his employment that he attempted to use for his own benefit.
The Court in the Sunbelt case held that the proper test for the enforeability of a restrictive covenant was whether enforcement of the restrictive covenant will be injurious to the public or cause undue hardship to the employee and whether the restraint imposed by the restrictive covenant is greater than is necessary to protect the employer.
The Court in the Sunbelt case was the Illinois Fourth Appellate District, which includes 30 counties across the central part of Illinois. Under Illinois law, a decision of any appellate court is binding as to trial level courts across the state. Hence, as an example, a trial level court in Cook County, which is in the First Appellate District, must follow the holding in the Sunbelt case.
The legitimate business interest test had been widely criticized and under attack for many years. The Illinois Supreme Court has never embraced the test, but has also never rejected it. In fact, in the Supreme Court’s most recent opinion in 2006 about restrictive covenants, it never even mentioned the legitimate business interest test. Instead, the ruling in that case that whether restrictive covenants were enforceable depended upon reasonableness of time and territory – the same reasoning employed by the Fourth Appellate District Court in the Sunbelt case.
Rejection of the legitimate business interest by the court in the Sunbelt case favored employees because it reduced the issues of enforceability of restrictive covenants solely to reasonableness of time and territory, rather than the more complicated – and more costly to litigate – issues of "near permanent relationships" and whether information was confidential or not.
On December 3, 2009, in a case entitled Aspen Marketing Services, Inc. v. Yvon Russell and Eventnext Marketing, Inc., the United States District Court, although noting in its opinion that the Sunbelt case rejected the legitimate business interest test for the enforceability of a restrictive covenant, nevertheless applied the legitimate business interest test in the Aspen Marketing case on the basis that "the Illinois Supreme Court, the United States Court of Appeals for the Seventh Circuit, and this [the United States District] court . . . have not rejected the applications of the legitimate business interest test." The Court did not further elaborate on its refusal to apply the ruling in the Sunbelt case.
The United States District Court’s refusal to apply the holding in the Sunbelt case means that the legitimate business interest test for the enforceability of restrictive covenants may continue to apply in cases heard before Federal District Courts in Illinois. However, a ruling from a particular district court judge is not binding on every other judge in the district. As previously stated, cases heard in state courts must still follow the holding of Sunbelt, until the Illinois Supreme Court readdresses the issue.
As we have reported on so many occasions, the law in the area of restrictive covenants is constantly changing. We continuously monitor these changes. Please do not hesitate to contact us if you haveany questions about the Sunbelt or Aspen Marketing cases or the current status of the law on the enforceability of restrictive covenants in Illinois.
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