RELIABLE FIRE EQUIPMENT CO. v. Arredondo
965 N.E.2d 393
Ill.2011Background
- Reliable sells and services portable extinguishers and fire systems with about 100 employees and serves the Chicago area.
- Garcia and Arredondo signed noncompetition covenants in 1997 and 1998, restricting post-employment activities in Illinois, Indiana, or Wisconsin for one year.
- High Rise Security, formed in 2004 with Arredondo and Garcia as managers, pursued a competing business in the Chicago area.
- Reliable suspected competition in 2004; Arredondo resigned in 2004 and Garcia was fired in 2004 on suspicion of competitive conduct.
- Reliable sued in 2004; the circuit court held the covenants unenforceable after bench trial; appellate court affirmed, then Supreme Court granted review.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the covenant is enforceable under the three-prong rule of reason. | Reliable contends a legitimate business interest supports enforcement. | Arredondo and Garcia argue no protectable interest exists beyond general competition. | Three-prong test applies; legitimate business interest required. |
| Proper standard of review for enforceability of restrictive covenants. | Court should apply de novo legal test to evidence. | Standard should defer to factual weight in bench trial. | Legal test reviewed de novo; not manifest-weight review. |
| Definition and scope of 'legitimate business interest' for the promisee. | Promisee has interests in customer relationships and confidential information. | Interest is limited and not broadly protectable. | Legitimate business interest is analyzed by totality of circumstances; not bound to two-factor Kolar test. |
| Remand appropriate where incorrect legal standard was used. | Case should be remanded to apply correct test. | Existing record should sustain decision. | Remand warranted to apply correct totality-of-circumstances test. |
Key Cases Cited
- Hursen v. Gavin, 162 Ill. 377 (Ill. 1896) (partial restraint valid if reasonable and supported by consideration)
- Bauer v. Sawyer, 8 Ill. 2d 351 (Ill. 1956) (three-factor test: public injury, hardship, and necessary restraint)
- House of Vision, Inc. v. Hiyane, 37 Ill. 2d 32 (Ill. 1967) (employer's interest in customers as legitimate interest)
- Cockerill v. Wilson, 51 Ill. 2d 179 (Ill. 1972) (three components of reasonableness: injury to public, hardship, necessary restraint)
- Mohanty v. St. John Heart Clinic, S.C., 225 Ill. 2d 52 (Ill. 2006) (confirming three-prong rule and legitimate business interest; activity limits considered)
- Sunbelt Rentals, Inc. v. Ehlers, 394 Ill. App. 3d 421 (Ill. App. Ct. 2009) (appellate court rejected legitimate-business-interest approach)
- Steam Sales Corp. v. Summers, 405 Ill. App. 3d 442 (Ill. App. Ct. 2010) (overruled to align Mohanty interpretation with three-prong test)
- Nationwide Advertising Service, Inc. v. Kolar, 28 Ill. App. 3d 671 (Ill. App. Ct. 1975) (formulated near-permanent customer relationship and confidential info tests)
- A.B. Dick Co. v. American Pro-Tech, 159 Ill. App. 3d 786 (Ill. App. Ct. 1987) (illustrates direction on reasonableness and interest protection)