Totality of Circumstances

The Illinois Supreme Court has stated that the question of whether or not a restrictive covenant is enforceable will be determined by examining the “totality of circumstances.” If such a phrase sounds broad and vague that’s because it is. This totality of circumstances test has only added to the confusion employers and employees alike experience when looking for guidance on the enforceability of a restrictive covenant. Given the lack of definiteness in this area of law, the outcome of any given restrictive covenant case is dependent in large part on the quality of advocacy.

In 2011, the Illinois Supreme Court had an opportunity to clear up the law in the area of restrictive covenants. To some, the Court’s express adoption of the “totality of circumstances” test in Reliable Fire Equipment Co. v. Arredondo, 2011 IL 111871, did just the opposite. Prior to the Arrendondo decision, the appellate courts had grappled with the question of what constituted a “legitimate business interest” (also referred to as protectable business interest). The one thing the courts agreed upon was that a restrictive covenant could not be enforceable unless the employer could identify a protectable business interest.

Over the years, Illinois appellate courts decided that there were only two protectable business interests: (1) “near permanent” customer relationships; and (2) confidential information. In Arredondo, the Illinois Supreme Court rejected that notion. Instead, the court widened the definition of a legitimate business interest by requiring courts to examine the “totality of circumstances” to determine if it a legitimate business interest existed. The totality of circumstances test is largely based on equitable principles of reasonableness.

Examining the totality of circumstances requires extensive review of the unique facts each case presents to identify a legitimate business interest. Near permanent customer relationships and confidential information are now only two of any possible number of protectable interests. The complete impact of this decision will not be known for years but what is immediately clear is that there is no substitute for quality advocacy in this area of law. For the employer seeking to enforce its non-compete or non-solicitation agreements, this means clearly articulating the legitimate business interest that exists when the totality of circumstances are considered—and articulating what those circumstances are that should be considered. For an employee, this means convincing the court that even when considering the totality of circumstances no legitimate business interest exists. Admittedly, the Arrendondo decision can be seen as favoring employers more than employees. More study would be needed to see if this decision has significantly altered the way the trial courts rule.

The attorneys at DiTommaso have decades of experience in all facets of restrictive covenant law from drafting employment agreements, to negotiating the terms of specific covenants, to litigating disputes over the enforceability of restrictive covenants. If you have an issue involving a restrictive covenant and are located in Chicago, Wheaton, Downers Grove or anywhere in the Cook or DuPage counties, give our attorneys a call today locally at 630-333-0000 or contact us online for a free consultation.