USA – ILLINOIS Trends and Developments Contributed by: Matthew Prewitt, Michael Molzberger, Trevor Jorgensen and James Cromley, ArentFox Schiff LLP
Illinois has long recognised that employers may have a legitimate interest in protecting customer relation - ships. See Morrison Metalweld Process Corp. v Valent , 97 Ill. App. 3d 373, 376 (1st Dist. 1981). Non-solicita - tion covenants restrict the employee’s contacts with specific customers, while non-competition covenants prevent employees from competing against their for - mer employer generally and, in so doing, taking or threatening to take customer relationships. Illinois common law differs from many other states, however, by inquiring more critically into the strength and duration of the customer relationships the employ - er is attempting to protect. Before the Illinois Supreme Court’s seminal decision in Reliable Fire , some Illi - nois courts required an employer to demonstrate as an essential showing for enforcement that the cus - tomer relationship was “near permanent”, but under the multi-factor inquiry adopted by Reliable Fire , this is now only one factor to be weighed in context. An employer who asserts that an employee’s restrictive covenants are necessary to protect the employer’s customer relationships must be prepared to demon - strate specific facts showing the longevity and con - sistency of those customer relationships, and general assertions of customer goodwill will not suffice. See Novamed, Inc. v Universal Quality Sols., Inc. , 2016 IL App (1st) 152673-U, ¶¶ 35–42. Because of this con - tinued emphasis on “near permanence”, it is unusual for an employer to rely solely on customer goodwill to justify enforcement of employee restrictive cov - enants, and as a practical matter, trade secrets and confidential business information will almost always be necessary to enforce a non-compete covenant or a customer non-solicitation covenant. See Gastroenter- ology Consultants of North Shore, S.C. v Meiselman , 2013 IL App (1st) 123692, ¶¶ 10–11. The departed employee’s quality and extent of cus - tomer interaction informs enforceability. Courts often find no legitimate interest in preventing solicitation of customers with whom the employee had no contact. See AssuredPartners , 2015 IL App (1st) 141863 at ¶¶ 41–42; Cambridge Eng’g, Inc. v Mercury Partners 90 BI, Inc. , 378 Ill. App. 3d 437, 455 (1st Dist. 2007). Con - versely, courts have upheld non-solicitation covenants limited to customers with whom the defendant inter - acted directly, while permitting acceptance of unsolic -
ited work when the customer initiates the contact. See Quality Transportation Servs., Inc. v Mark Thompson Trucking, Inc. , 2017 IL App (3d) 160761, ¶ 32. Reasonable limitations on duration and geographic scope are essential for enforceability, though no bright- line rule exists. Courts have upheld five-year non-solic - itation covenants where the evidence showed that cus - tomer relationships in the industry averaged five years and the covenant was limited to customers with recent business dealings. Arpac Corp. v Murray , 226 Ill. App. 3d 65, 76 (1st Dist. 1992). Two-year non-competition and non-solicitation covenants limited to customers the employee had actually served have also been enforced. Zabaneh Franchises, LLC v Walker , 2012 IL App (4th) 110215, ¶¶ 16, 21–23; Arthur J. Gallagher & Co. v Roi , 2015 IL App (1st) 140786-U, ¶¶ 9, 47, 51; Appelbaum v Appelbaum , 355 Ill. App. 3d 926, 930, 942 (1st Dist. 2005). Courts tend to favour enforcement of customer non-solicitation covenants and to approach non-com - petition covenants with greater scepticism as disfa - voured blanket prohibitions on all competitive activity. Maximum Indep. Brokerage, LLC v Smith , 218 F. Supp. 3d 630, 638 (N.D. Ill. 2016). Reforming and Modifying Restrictive Covenants Illinois law permits courts to modify or “blue pencil” overbroad restrictive covenants rather than void them entirely. House of Vision, Inc. v Hiyane , 37 Ill. 2d 32 (1967). The 2022 IFWA amendments codified this power, authorising courts to reform or sever provi - sions based on factors including the fairness of the restraints, whether they reflect a good-faith effort to protect legitimate interests, the extent of reforma - tion needed, and whether the agreement authorises modification. Courts have the discretion to refuse to blue pencil covenants that are facially overbroad or that would require essentially rewriting the agreement. Notably, Illinois law affords the court the discretion to reform a covenant by re-writing it or by supplying missing terms, in contrast to some states that only allow the striking out of words or phrases and prohibit any additions to the text of the covenant. This flex - ibility may be a substantial benefit for the employer by allowing the court to grant injunctive relief that is tailored to the particular circumstances of the dispute before the court, rather than throwing out entirely a covenant simply because it is overbroad as drafted.
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