Illinois Appellate Court Upholds Non-Compete Without Requiring a Showing of Legitimate Business Interest

The Fourth District Illinois Appellate Court recently issued a decision rejecting the long-standing rule that an employer seeking to enforce a restrictive covenant must establish a “legitimate business interest” (e.g., that the covenant is necessary to protect confidential information or a near permanent customer relationship).   In Sunbelt Rentals, Inc. v. Ehlers, No. 4-09-0290, 2009 WL 3052369 (4^th Dist. September 23, 2009), the court held that enforceability of a restrictive covenant turned solely on the reasonableness of its time and territory restrictions.

When Neil Ehlers (“Ehlers”), a sales representative, began his employment with Sunbelt Rentals, Inc. (“Sunbelt”) in June 2003, he signed a written employment agreement containing a restrictive covenant prohibiting him from competing with Sunbelt within a 50-mile radius of any Sunbelt store for a period of 1 year.  Sunbelt is engaged in the business of renting and selling industrial equipment to commercial and residential customers in 400 nationwide branches, including Bloomington and Champaign.  In January 2009, Ehlers accepted a job as a sales representative with Midwest Aerials & Equipment, Inc. (“Midwest”), which rented and sold aerial work platforms to industrial and construction customers, and subsequently terminated his employment with Sunbelt.  That month, upon learning that Ehlers was working for Midwest, Sunbelt issued a cease and desist letter to Ehlers, copying Midwest.  When Ehlers continued working for Midwest, Sunbelt sought a preliminary injunction barring him from working for Midwest.  The trial court granted the injunction, and Midwest and Ehlers appealed, arguing that the trial court failed to specifically apply the legitimate business interest test. 

The Sunbeltcourt upheld the trial court’s ruling, finding that application of the legitimate business interest test was unnecessary, and enforceability of the covenant turned solely on the reasonableness of its time and territory restrictions.  Although the Sunbelt court acknowledged that the legitimate business interest test had been cited by all the districts of the Illinois Appellate Court in deciding restrictive covenant cases since 1975, thecourt went on to conclude that the Illinois Supreme Court had never embraced the legitimate business interest test, and that it is inconsistent with recent Illinois Supreme Court decisions concerning restrictive covenants that evaluate time and territory restrictions alone.  Notably, the reasoning articulated by the Sunbelt court relies heavily on Illinois Supreme Court cases involving medical professionals.  Other courts have interpreted these cases as carving out a separate rule for medical professionals, but the Sunbeltcourt makes no such distinction.      

In light of Sunbelt, Illinois courts, particularly in the 4^th District, may be moving toward greater acceptance of restrictive covenants.  However, it is too soon to tell whether Sunbeltwill mark the beginning of a lasting change or will be dismissed as an anomaly in established legal precedent.  Regardless, as always, the enforcement of any restrictive covenant depends on the jurisdiction in which the lawsuit will be filed.

When seeking to enforce a restrictive covenant or considering whether to hire an employee subject to a restrictive covenant, employers in Illinois need to give careful consideration to the Sunbeltdecision and its impact on the likelihood that the covenant will be enforced.

If you would like to discuss the Sunbeltcase or any other employment law issue, please contact Edward N. Druck, Michael A. Warner, Jr., Staci Ketay Rotman, Allison L. Goico, or any other Franczek Radelet attorney.