Court Opinion

ID: 3135645
Source: CourtListenerOpinion
Date Created: 2015-10-22 17:40:18.883795+00
Date Added: 2024-06-11T12:04:35.981473
License: Public Domain

ILLINOIS OFFICIAL REPORTS
                                         Supreme Court

                  Reliable Fire Equipment Co. v. Arredondo, 2011 IL 111871

Caption in Supreme         RELIABLE FIRE EQUIPMENT COMPANY, Appellant, v. ARNOLD
Court:                     ARREDONDO et al., Appellees.

Docket No.                 111871
Filed                      December 1, 2011
Rehearing denied           March 26, 2012
Held                       The enforceability of employees’ covenant not to compete should be
(Note: This syllabus       judged by the three-prong test of reasonableness, of which the employer’s
constitutes no part of     legitimate business interest continues to be a part, and which looks to the
the opinion of the court   totality of all of the circumstances, rather than focusing on named specific
but has been prepared      factors.
by the Reporter of
Decisions for the
convenience of the
reader.)

Decision Under             Appeal from the Appellate Court for the Second District; heard in that
Review                     court on appeal from the Circuit Court of Du Page County, the Hon.
                           Bonnie M. Wheaton, Judge, presiding.

Judgment                   Judgments reversed; cause remanded.
Counsel on               Christopher P. Banaszak and Robert S. Driscoll, of Reinhart Boerner Van
Appeal                   Deuren s.c., of Milwaukee, Wisconsin (Robert G. Black, of Naperville,
                         of counsel), for appellant.

                         Tom P. Gregory, Jack C. Lai and Maria V. Vasos, of Gregory & Lai, of
                         Barrington, for appellees.

Justices                 JUSTICE FREEMAN delivered the judgment of the court, with opinion.
                         Chief Justice Kilbride and Justices Thomas, Garman, Karmeier, Burke,
                         and Theis concurred in the judgment and opinion.

                                          OPINION

¶1        Plaintiff, Reliable Fire Equipment Company (Reliable), filed a complaint in the circuit
      court of Du Page County against defendants Arnold Arredondo, Rene Garcia, and High Rise
      Security Systems, LLC (High Rise). Reliable claimed, inter alia, a breach of a
      noncompetition restrictive covenant. At the close of a bench trial on this claim, the circuit
      court ruled that the covenant was unenforceable. A divided panel of the appellate court
      upheld the circuit court’s order. 405 Ill. App. 3d 708. We allowed Reliable’s petition for
      leave to appeal. Ill. S. Ct. R. 315 (eff. Feb. 26, 2010). We now reverse the judgment of the
      appellate court and the order of the circuit court, and remand the cause to the circuit court
      for further proceedings.

¶2                                      I. BACKGROUND
¶3        Founded in 1955, Reliable sells, installs, and services portable fire extinguishers and a
      variety of fire suppression and fire alarm systems. Reliable designs or engineers the systems
      to fit the needs of industrial, commercial, and retail businesses; hospitals and schools; and
      all manner of nonresidential buildings. Reliable has approximately 100 employees, including
      salespersons, installers, and service technicians. Reliable does the majority of its business
      in the Chicago metropolitan area, northern Indiana, and southern Wisconsin.
¶4        In April 1992, Reliable hired Garcia as a systems technician and, approximately one year
      later, offered Garcia a sales position, which he accepted. Sometime in 1997, Reliable
      required all employees to sign noncompetition restrictive covenants. In November 1997
      Garcia signed his noncompetition agreement. In November 1998, Reliable hired Arredondo
      as a salesperson. Approximately one week later, Arredondo signed his noncompetition
      agreement. In their agreements, Arredondo and Garcia each promised, inter alia, not to
      compete with Reliable during their employment and for one year after their termination from
      employment in Illinois, Indiana, or Wisconsin. Arredondo and Garcia further promised not
      to solicit any sales or referrals from Reliable customers or referral sources, or to solicit

                                               -2-
       Reliable employees to leave their employment with Reliable.
¶5         High Rise’s stated purpose was to supply engineered fire alarm and related auxiliary
       systems throughout the Chicago metropolitan area. In March 2004, Arredondo was seeking
       financing for High Rise. In April 2004, High Rise was formed as a limited liability
       corporation. High Rise’s managers included Arredondo and Garcia. On August 17, 2004,
       they signed an operating agreement for High Rise.
¶6         In August 2004, Ernest Horvath, Reliable’s founder and chairman of the board, became
       concerned that Arredondo and Garcia were planning to compete with Reliable. He asked
       them and another employee whether they were going to start their own business, and each
       denied it. On September 1, 2004, Arredondo resigned from Reliable effective September 15.
       On October 1, 2004, Reliable fired Garcia on suspicion of competition.
¶7         In December 2004, Reliable filed its original, multiple-count complaint against
       defendants. In count III of its second amended complaint, Reliable alleged as follows. The
       company had entered into valid and enforceable employment agreements with Arredondo
       and Garcia. In violation of the restrictive covenants contained therein, Arredondo and Garcia
       engaged in sales activities and provided services to Reliable customers, and solicited referrals
       from Reliable’s referral sources. Also, Arredondo and Garcia solicited several named
       Reliable employees to leave their employment with Reliable. As a result of their breach of
       contract, Reliable alleged damages in excess of $400,000.
¶8         Defendants filed a first amended counterclaim that sought, inter alia, a declaration that
       the restrictive covenants were unenforceable. In November 2007, the circuit court held a
       bench trial on defendants’ declaratory judgment action. At the close of the evidence, the
       court ruled that the restrictive covenants were unenforceable. The court concluded that
       Reliable failed to prove the existence of a legitimate business interest that justified
       enforcement of the covenants.1
¶9         A sharply divided panel of the appellate court affirmed. 405 Ill. App. 3d 708. The lead
       opinion upheld the circuit court’s conclusion that Reliable did not have a legitimate business
       interest that justified the enforcement of the restrictive covenants. 405 Ill. App. 3d at 743-48.
       The special concurrence agreed that the circuit court’s conclusion should be upheld, but
       disagreed with the reasoning of the lead opinion. 405 Ill. App. 3d at 748 (Hudson, J.,
       specially concurring). The dissent agreed with the reasoning of the special concurrence and,
       based thereon, would reverse and remand for further proceedings. 405 Ill. App. 3d at 753,
       759 (O’Malley, J., dissenting). Reliable now appeals.

¶ 10                                      II. ANALYSIS
¶ 11                                  A. Standard of Review
¶ 12       Initially, Reliable observes that Illinois courts have described different standards of

               1
                The circuit court conducted a jury trial on Reliable’s remaining claims. At the close of
       Reliable’s case in chief, the court granted defendants’ motion for a directed verdict, and defendants
       voluntarily dismissed their counterclaim.

                                                   -3-
       review in restrictive covenant cases. It is traditionally stated that the enforceability of a
       restrictive covenant is a question of law, the determination of which is reviewed de novo
       (Mohanty v. St. John Heart Clinic, S.C., 225 Ill. 2d 52, 63 (2006)), based on the facts in each
       particular case. See Tarr v. Stearman, 264 Ill. 110, 118-19 (1914); Lanzit v. J.W. Sefton
       Manufacturing Co., 184 Ill. 326, 330 (1900). In the case at bar, the circuit court held a bench
       trial to determine the enforceability of the postemployment restrictive covenant. Generally,
       the standard of review in a bench trial is whether the order or judgment is against the
       manifest weight of the evidence. Eychaner v. Gross, 202 Ill. 2d 228, 251 (2002); Kalata v.
       Anheuser-Busch Cos., 144 Ill. 2d 425, 433 (1991).
¶ 13        However, the case at bar calls for only one standard of review. The issue presented for
       review is not whether the circuit court’s order is supported by sufficient evidence, thereby
       necessitating the manifest weight of the evidence standard with its attendant deference. See
       Schulenburg v. Signatrol, Inc., 37 Ill. 2d 352, 356 (1967). Rather, the issue here is whether
       the circuit court applied the correct legal test to the evidence presented. This is a question of
       law which is reviewed de novo. In re A.H., 207 Ill. 2d 590, 593 (2003).

¶ 14                    B. The Three Basic Components of Reasonableness
¶ 15       Two panels of our appellate court have questioned whether Illinois recognizes the
       legitimate business interest of the promisee as a requirement of an enforceable restrictive
       covenant. We now take the opportunity to correct this misconception.
¶ 16       This court long ago explained that a contract in total and general restraint of trade was
       “undoubtedly” void because it “necessarily” injures the public at large and the individual
       promisor. Such a contract deprives the public of the industry of the promisor, and deprives
       the promisor of the opportunity to pursue an occupation and thereby support his or her
       family. Hursen v. Gavin, 162 Ill. 377, 379-80 (1896). However, it is equally established that
       a restrictive covenant will be upheld if it contains a reasonable restraint and the agreement
       is supported by consideration. Storer v. Brock, 351 Ill. 643, 647 (1933) (collecting cases);
       accord 6 Richard A. Lord, Williston on Contracts § 13:1, at 7-11 (4th ed. 2009); Restatement
       (Second) of Contracts § 186 & cmt. a (1981).
¶ 17       “The modern, prevailing common-law standard of reasonableness for employee
       agreements not to compete applies a three-pronged test.” BDO Seidman v. Hirshberg, 712
       N.E.2d 1220, 1223 (N.Y. 1999). A restrictive covenant, assuming it is ancillary to a valid
       employment relationship, is reasonable only if the covenant: (1) is no greater than is required
       for the protection of a legitimate business interest of the employer-promisee; (2) does not
       impose undue hardship on the employee-promisor, and (3) is not injurious to the public. Id.;
       Restatement (Second) of Contracts § 187 cmt. b, § 188(1) & cmts. a, b, c (1981).2 Further,
       the extent of the employer’s legitimate business interest may be limited by type of activity,
       geographical area, and time. Restatement (Second) of Contracts § 188 cmt. d (1981). This

               2
               Since ancillarity is required, one may describe the test of reasonableness as having four
       elements, expressly listing ancillarity, instead of three elements, which assumes ancillarity. See 15
       Grace McLane Giesel, Corbin on Contracts § 80.6, at 69 (rev. ed. 2003).

                                                   -4-
       court long ago established the three-dimensional rule of reason in Illinois and has repeatedly
       acknowledged the requirement of the promisee’s legitimate business interest down to the
       present day.
¶ 18        In Hursen v. Gavin, 162 Ill. 377 (1896), after reciting the general principle that contracts
       in total and general restraint of trade are void as against public policy, this court stated:
                     “But a contract, which is only in partial restraint of trade, is valid, provided it is
                reasonable and has a consideration to support it. [Citations.] The restraint is
                reasonable, when it is such only as to afford a fair protection to the interests of the
                party, in whose favor it is imposed. If the restraint goes beyond such fair protection,
                it is oppressive to the other party and injurious to the interests of the public, and,
                consequently, void upon the ground of public policy.” (Emphasis added.) Id. at 380.
       This court held that the restrictive covenant was valid, explaining: “One element of the value
       of the business transferred by appellant to appellee was the probability, that the customers
       of the former would continue to trade with the latter ***. *** The limitation here did not go
       beyond what was necessary for the protection of appellee in the prosecution of the business
       purchased by him, and was, therefore, reasonable.” Id. at 382. In Hursen, as in a prior case,
       Linn v. Sigsbee, 67 Ill. 75 (1873), this court applied what came to be the Restatement’s three-
       component test of reasonableness: given that the restrictive covenant was ancillary to the sale
       of the business, (1) the restraint was necessary to protect the legitimate interest of the
       promisee; (2) the restraint did not impose a hardship on the promisor or the public; and (3)
       the extent or scope of the restraint was otherwise reasonable.
¶ 19        In Bauer v. Sawyer, 8 Ill. 2d 351 (1956), several physicians were members of a Kankakee
       medical partnership. The partnership agreement provided in pertinent part that if a member
       withdrew or terminated association with the partnership, that person would not practice
       medicine within a 25-mile radius of Kankakee for five years. Id. at 353-54. This court held
       that an injunction should issue against a physician who left the partnership. This court recited
       the general principles that were well established by that time: “In determining whether a
       restraint is reasonable it is necessary to consider whether enforcement will [1] be injurious
       to the public or [2] cause undue hardship to the promisor, and [3] whether the restraint
       imposed is greater than is necessary to protect the promisee. [Citations.]” Id. at 355. In
       addition, the time and territory limitations must be reasonable. Id. This court considered each
       of the three recognized elements of reasonableness. In so doing, the court carefully and
       specifically examined the interest of the partnership-promisee. The court agreed with the
       principle that members of a partnership have a legitimate business interest in protecting
       themselves against the competition of an outgoing partner, and that a restrictive covenant to
       that effect is not opposed to public policy. Id. at 356-57 (collecting authorities).
¶ 20        In House of Vision, Inc. v. Hiyane, 37 Ill. 2d 32 (1967), an employer brought an action
       to enforce an employee’s covenant not to compete. This court began its analysis of the
       restrictive covenant by discussing the employer’s legitimate business interest: “Here the
       interest to be protected was the interest of the plaintiff in its customers.” (Emphasis added.)
       Id. at 37-38. Only after this court articulated the employer’s legitimate business interest did
       it consider the reasonableness of the time and territory limitations, or the lack thereof. Id. at

                                                   -5-
       38-39.
¶ 21        In Cockerill v. Wilson, 51 Ill. 2d 179 (1972), the narrow issue presented was whether the
       time and territory limitations of the restrictive covenant were greater than necessary to
       protect the plaintiff. Id. at 183. This court began its analysis of the provision by reciting the
       three components of reasonableness: injury to the public; undue hardship on the promisor;
       and the need for the protection of the limitation by the promisee. This court recognized that
       “the interest plaintiff sought to protect by the covenant was his interest in his clients.” Id. at
       184.
¶ 22        In Mohanty v. St. John Heart Clinic, S.C., 225 Ill. 2d 52 (2006), plaintiff-physicians
       sought a declaratory judgment that the restrictive covenants in their employment agreements
       were void. Defendants, the employer-clinic and its owner, counterclaimed for declaratory,
       injunctive, and other relief. The circuit court concluded that the geographic restriction was
       reasonable, but that the activity restriction–the practice of medicine–was greater than
       necessary to protect the defendants’ interests, which was cardiology. The appellate court
       reversed, concluding that the activity restriction, within the narrowly drawn geographic
       limits, would not cause undue hardship and was not greater than necessary to protect the
       defendants’ interests. Id. at 61-62.
¶ 23        Before this court, plaintiffs contended, inter alia, that their restrictive covenants were
       unreasonably overbroad in their time and activity restrictions. Id. at 75. In upholding the
       restrictive covenants, this court expressly repeated the three established components of
       reasonableness:
                “[T]his court has a long tradition of upholding covenants not to compete in
                employment contracts involving the performance of professional services when the
                limitations as to time and territory are not unreasonable. [Citations.] In determining
                whether a restraint is reasonable it is necessary to consider whether enforcement will
                be injurious to the public or cause undue hardship to the promisor, and whether the
                restraint imposed is greater than is necessary to protect the promisee. [Citation.]”
                (Internal quotation marks omitted.) (Emphasis added.) Id. at 76.
       In upholding the restrictive covenant, this court stated: “Thus, we find that the restraint on
       the practice of medicine, here, was not greater than necessary to protect the defendants’
       interests. This is particularly so because the restriction on plaintiffs is in effect only within
       a narrowly circumscribed area of a large metropolitan area.” (Emphasis added.) Id. at 77.
¶ 24        This discussion shows that this court, from as far back as Linn and Hursen, through cases
       such as Bauer and House of Vision, and down to the present day in Mohanty, has repeatedly
       recognized the three-dimensional rule of reason, specifically including the element of the
       legitimate business interest of the promisee. However, in Sunbelt Rentals, Inc. v. Ehlers, 394
       Ill. App. 3d 421 (2009), a panel of our appellate court concluded that the test of
       reasonableness of a restrictive covenant is something other than the prevalent three-prong
       inquiry long established by this court.
¶ 25        In Sunbelt, Ehlers was a sales representative for Sunbelt. He had entered into an
       employment agreement containing a restrictive covenant providing that he would not
       compete with Sunbelt within a 50-mile radius of any of Sunbelt’s stores for one year after

                                                  -6-
       the date of the expiration or termination of his employment. Ehlers resigned from Sunbelt
       and, within the one-year restriction, accepted a position with one of Sunbelt’s competitors.
       Sunbelt sued Ehlers and his new employer, seeking injunctive relief. Sunbelt, 394 Ill. App.
       3d at 423-25.
¶ 26       The circuit court enforced the restrictive covenant, finding that the time and territory
       limitations of the restrictive covenant were reasonable, but did not apply the legitimate
       business interest test as interpreted by the appellate court. Id. at 425. The appellate court
       briefly surveyed only some of the above-discussed cases from this court and concluded:
       “Accordingly, because (1) the Supreme Court of Illinois has never embraced the ‘legitimate-
       business-interest’ test and (2) its application is inconsistent with the supreme court’s long
       history of analysis in restrictive covenant cases, we reject the ‘legitimate-business-interest’
       test.” Id. at 431. The Sunbelt court prescribed that a court, when presented with the issue of
       whether a restrictive covenant should be enforced, should evaluate its reasonableness based
       only on its time and territory restrictions. “Thus, this court need not engage in an additional
       discussion regarding the application of the ‘legitimate-business-interest’ test because that test
       constitutes nothing more than a judicial gloss incorrectly applied to this area of law by the
       appellate court.” Id.
¶ 27       In the present case, while the appellate court justices disagreed amongst themselves
       concerning the proper application of the legitimate business interest component of the rule
       of reason, each member of the panel rejected the conclusions of Sunbelt. 405 Ill. App. 3d at
       723; Id. at 749 (Hudson, J., specially concurring); Id. at 755 (O’Malley, J., dissenting). We
       do likewise. Sunbelt overlooked or misapprehended this court’s above-discussed case law
       that established the three-prong inquiry into the reasonableness of restrictive covenants.
       Contrary to this authority, Sunbelt “disallows inquiry into whether the employer has an
       interest other than suppression of ordinary competition.” Id. at 723 (lead op.). “Sunbelt seems
       to say that the employer’s legitimate interest is whatever the parties agree to in the contract.
       [Citation.] If the employer’s legitimate interest is a matter of contract only, then the quoted
       language in the above supreme court cases would be superfluous.” Id. at 733.
¶ 28       Specifically, the appellate court in Sunbelt misread this court’s Mohanty decision in
       support of its erroneous conclusion. The appellate court discussed Mohanty and even quoted
       Mohanty’s recitation of the three-prong rule of reason. Sunbelt, 394 Ill. App. 3d at 430
       (quoting Mohanty, 225 Ill. 2d at 76). However, the appellate court observed that the Mohanty
       court did not mention the employer’s legitimate business interest in upholding that restrictive
       covenant. Therefore, the appellate court concluded that the legitimate business interest
       component of the three-prong rule of reason was no longer valid in Illinois, if it ever was.
       Sunbelt, 394 Ill. App. 3d at 430-31.
¶ 29       We emphatically disagree. Even a cursory review of Mohanty refutes this reasoning. The
       plaintiff-physicians contended that the restrictive covenants were unreasonable only because
       their activity and temporal restrictions were overbroad. Mohanty, 225 Ill. 2d at 64. They
       never challenged the defendant-employers’ legitimate business interest, thereby conceding
       the point. Further, this court expressly recited the legitimate interest of the promisee as a
       component of the three-prong rule of reason. Indeed, Mohanty’s recognition of the legitimate
       business interest of the promisee was unanimous. The special concurrence observed that

                                                 -7-
       plaintiffs did not dispute that defendants had “a clearly ascertainable right in need of
       protection.” Id. at 80 (Karmeier, J., specially concurring, joined by Garman, J.). Even the
       dissent recognized “the legitimate business interests that employers such as defendants wish
       to protect.” Id. at 93 (Freeman, J., dissenting). Lastly, in upholding the restrictive covenant,
       this court stated: “Thus, we find that the restraint on the practice of medicine, here, was not
       greater than necessary to protect defendants’ interests.” (Emphasis added.) Id. at 77
       (majority op.). Sunbelt is hereby overruled.
¶ 30       Further, in Steam Sales Corp. v. Summers, 405 Ill. App. 3d 442 (2010), the appellate
       court propagated Sunbelt’s error: “As opposed to the legitimate-business-interest test, Sunbelt
       cites the two-prong reasonableness test appearing in Mohanty, the most recent supreme court
       case addressing restrictive covenants.” Id. at 457. The court in Steam Sales goes on to discuss
       “Mohanty’s reasonableness test versus the legitimate-business-interest test.” Id. To the extent
       that Steam Sales characterizes Mohanty as deviating from the above-described general three-
       prong rule of reason, Steam Sales is hereby overruled. Based on this court’s extensive
       precedent, we continue to recognize the legitimate business interest of the promisee as a
       long-established component in the three-prong rule of reason.

¶ 31                C. Application of Employer’s Legitimate Business Interest
¶ 32       Before this court, Reliable contends that the lower courts misapplied the legitimate
       business interest of the promisee, as a component of the three-prong rule of reason, in
       assessing the enforceability of the noncompetition agreement. The separate appellate court
       opinions in the present case debated two approaches to applying this component. We assess
       these analytical schemes.
¶ 33       Certainly, the prevalent three-prong inquiry “fleshes out the legal standard [of
       reasonableness] a bit.” Consultants & Designers, Inc. v. Butler Service Group, Inc., 720 F.2d
       1553, 1557 (11th Cir. 1983). However, the three-prong test of reasonableness remains
       “unstructured.” Reddy v. Community Health Foundation of Man, 298 S.E.2d 906, 911 (W.
       Va. 1982). Notably, “[p]recedents are of less than usual value because the question of
       reasonableness must be decided on an ad hoc basis. There is no inflexible formula.” (Internal
       quotation marks omitted.) Consultants & Designers, Inc., 720 F.2d at 1557; accord
       Ferrofluidics Corp. v. Advanced Vacuum Components, Inc., 968 F.2d 1463, 1470 (1st Cir.
       1992) (collecting authorities); Restatement (Second) of Contracts § 188 cmt. a, at 42 (1981)
       (“No mathematical formula can be offered for this process”).
¶ 34       Under some circumstances, “a promise to refrain from competition is a natural and
       reasonable means of protecting a legitimate interest of the promisee.” Restatement (Second)
       of Contracts § 188 cmt. b (1981). In the case of a postemployment restraint, where the
       employer-promisee exacts from the employee a promise not to compete after termination of
       the employment, the restraint is usually justified on the ground that the employer has a
       legitimate business interest in restraining the employee from appropriating the employer’s
       (1) confidential trade information, or (2) customer relationships. Included within these
       precepts are several factors for a court to consider. Id. cmts. b, g; accord Harlan M. Blake,
       Employee Agreements Not to Compete, 73 Harv. L. Rev. 625, 651-74 (1960).

                                                 -8-
¶ 35        Beyond this recognized description of the legitimate business interest of the employer,
       some courts have endeavored to “further explain what must be considered.” 15 Grace
       McLane Giesel, Corbin on Contracts § 80.6, at 70 (rev. ed. 2003). Such attempts usually
       collapse into lists of factors. See, e.g., Chambers-Dobson, Inc. v. Squier, 472 N.W.2d 391,
       400 (Neb. 1991) (and cases cited therein); Arthur Murray Dance Studios of Cleveland, Inc.
       v. Witter, 105 N.E.2d 685, 694-99 (Ohio C.P. 1952) (listing factors). Further, compilers of
       such lists repeat there is no exact formula required in a court’s analysis. “The factors or
       considerations to be used in that balancing test are not weighted; that is, there is no
       prescribed method by which more or less weight is assigned to each factor to be considered
       in the balancing test ***.” Chambers-Dobson, 472 N.W.2d at 400. Also, compilers of such
       lists repeat that the factors therein are not exclusive. Arthur Murray, 105 N.E.2d at 695.
¶ 36        However, our appellate court did develop a formula for assessing the legitimate business
       interest of the promisee. Further, some of the factors considered in this formula were highly
       weighted, if not conclusive. In Nationwide Advertising Service, Inc. v. Kolar, 28 Ill. App. 3d
       671 (1975), plaintiff advertising agency sought to enforce a restrictive covenant against its
       former employee and appealed the denial of enforcement. Plaintiff contended that “under
       Illinois law an employer such as it had a legitimate business interest in its customers which
       was subject to protection through enforcement of an employee’s covenant not to compete.”
       Id. at 673.
¶ 37        In summarizing the principles on which the court based its earlier analysis in the same
       case (Nationwide Advertising Service, Inc. v. Kolar, 14 Ill. App. 3d 522 (1973)), the Kolar
       court wrote as follows:
                “[A]n employer’s business interest in customers is not always subject to protection
                through enforcement of an employee’s covenant not to compete. Such interest is
                deemed proprietary and protectable only if certain factors are shown. A covenant not
                to compete will be enforced if [1] the employee acquired confidential information
                through his employment and subsequently attempted to use it for his own benefit.
                [Citation.] An employer’s interest in its customers also is deemed proprietary if, [2]
                by the nature of the business, the customer relationship is near-permanent and but for
                his association with plaintiff, defendant would never have had contact with the
                clients in question. (Cockerill v. Wilson (1972), 51 Ill. 2d 179 ***; Canfield v. Spear
                (1969), 44 Ill. 2d 49 ***.) Conversely, a protectable interest in customers is not
                recognized where the customer list is not secret (House of Vision, Inc. v. Hiyane
                (1967), 37 Ill. 2d 32 ***), or where the customer relationship is short-term and no
                specialized knowledge or trade secrets are involved.” Kolar, 28 Ill. App. 3d at 673.
       Although the Kolar court cited this court’s decisions in Cockerill, House of Vision, and
       Canfield as authority for this formulation of a legitimate business interest “test,” none of
       those cases used that test in their respective analyses. Rather, each decision was based on the
       totality of its own facts.
¶ 38        During the 36 years subsequent to Kolar, our appellate court has variously set forth this
       “test” as the sine qua non for the enforcement of a covenant not to compete. See, e.g.,
       Hanchett Paper Co. v. Melchiorre, 341 Ill. App. 3d 345, 351 (2003); Dam, Snell & Taveirne,

                                                 -9-
       Ltd. v. Verchota, 324 Ill. App. 3d 146, 151-52 (2001); Carter-Shields v. Alton Health
       Institute, 317 Ill. App. 3d 260, 268 (2000); Springfield Rare Coin Galleries, Inc. v. Mileham,
       250 Ill. App. 3d 922, 929-30 (1993); A.B. Dick Co. v. American Pro-Tech, 159 Ill. App. 3d
       786, 792-93 (1987); Reinhardt Printing Co. v. Feld, 142 Ill. App. 3d 9, 15-16 (1986); see
       also Outsource International, Inc. v. Barton, 192 F.3d 662, 666 (7th Cir. 1999) (applying
       Illinois law); Curtis 1000, Inc. v. Suess, 24 F.3d 941, 947 (7th Cir. 1994) (“But Illinois,
       unlike Delaware, limits the interests that a covenant not to compete may protect to trade
       secrets, confidential information, and relations with ‘near-permanent’ customers of the
       employer”). Even further, and exemplary of this erroneous proliferation of templates, our
       appellate court has developed two alternative “tests” to determine its “near-permanence”
       prong of its conclusive two-prong test for a promisee’s legitimate business interest. Some
       courts analyze the near-permanent relationship according to seven objective factors. See, e.g.,
       Hanchett Paper, 341 Ill. App. 3d at 352 (quoting Audio Properties, Inc. v. Kovach, 275 Ill.
       App. 3d 145, 148-49 (1995)); Office Mates 5, North Shore, Inc. v. Hazen, 234 Ill. App. 3d
       557, 572-73 (1992). In contrast, other courts follow a “nature of the business” test. See, e.g.,
       Lawrence & Allen, Inc. v. Cambridge Human Resource Group, Inc., 292 Ill. App. 3d 131,
       142 (1997) (collecting cases).
¶ 39        In the present case, the lead opinion in the appellate court applied these “tests” in
       upholding the circuit court’s ruling that the noncompetition restrictive covenant was
       unenforceable. 405 Ill. App. 3d at 743-48. The specially concurring justice agreed with the
       circuit court’s result, but based on the totality of the circumstances presented in the record.
       He stated: “Analyzing such covenants with reference to the totality of the circumstances to
       determine if an employer has a protectable interest, as opposed to utilizing the typical rigid
       version of the legitimate-business-interest test, will lead to results more grounded in the true
       considerations of a given case.” Id. at 751 (Hudson, J., specially concurring).3 We agree.
¶ 40        To the extent the appellate court’s “tests” are conclusive, they are plainly contrary to the
       above-described general principles pertaining to the promisee’s legitimate business interest
       based on the totality of the circumstances of the particular case. The understandable
       temptation is to view exemplary facts presented in particular cases as the outermost boundary
       of the inquiry. Thus, precedent is set to guide future cases. However, “if it were possible to
       make a complete list today, human ingenuity would render the list obsolete tomorrow.”
       Arthur Murray, 105 N.E.2d at 695.
¶ 41        Parties have long turned to the common law to argue for or against the enforceability of
       noncompetition agreements. “There is, therefore, an especially well-developed and
       significant body of judicial decisions applying the general rule of reason *** to such
       promises.” Restatement (Second) of Contracts § 187 cmt. a (1981). The common law, based
       on reason and experience, has recognized several factors and subfactors within the

               3
               Another side-by-side comparison of the appellate court’s application of the legitimate
       business interest test, with the application of the promisee’s legitimate business interest as a
       component of the rule of reason, is found in the majority opinion and special concurrence in A.B.
       Dick, 159 Ill. App. 3d at 792-94; Id. at 795 (Jiganti, J., specially concurring).

                                                 -10-
       component of the promisee’s legitimate business interest.
¶ 42       However, we hold that such factors are only nonconclusive aids in determining the
       promisee’s legitimate business interest, which in turn is but one component in the three-
       prong rule of reason, grounded in the totality of the circumstances. “Each case must be
       determined on its own particular facts. [Citations.] Reasonableness is gauged not just by
       some but by all of the circumstances. [Citations.] The same identical contract and restraint
       may be reasonable and valid under one set of circumstances, and unreasonable and invalid
       under another set of circumstances.” (Emphasis in original.) Arthur Murray, 105 N.E.2d at
       692-93. Accord Restatement (Second) of Contracts § 186 cmt. a, § 188 cmt. g. We expressly
       observe that appellate court precedent for the past three decades remains intact, but only as
       nonconclusive examples of applying the promisee’s legitimate business interest, as a
       component of the three-prong rule of reason, and not as establishing inflexible rules beyond
       the general and established three-prong rule of reason.
¶ 43       In sum, the legitimate business interest test is still a viable test to be employed as part of
       the three-prong rule of reason to determine the enforceability of a restrictive covenant not to
       compete. However, the two-factor test created in Kolar, in which a near-permanent customer
       relationship and the employee’s acquisition of confidential information through his
       employment are determinative, is no longer valid. Rather, we adopt the position of Justice
       Hudson’s special concurrence, which is: whether a legitimate business interest exists is based
       on the totality of the facts and circumstances of the individual case. Factors to be considered
       in this analysis include, but are not limited to, the near-permanence of customer
       relationships, the employee’s acquisition of confidential information through his
       employment, and time and place restrictions. No factor carries any more weight than any
       other, but rather its importance will depend on the specific facts and circumstances of the
       individual case.

¶ 44                                          D. Remand
¶ 45        Before this court, Reliable reasons: “If the circuit court applied the wrong legal standard
       to the facts of the case, then remand is the proper remedy to give the court an opportunity to
       apply the correct test.” The circuit court ruled that the noncompetition restrictive covenant
       was unenforceable. The appellate court special concurrence agreed with the lead opinion that
       the circuit court ruling should be upheld, but based on the totality of the circumstances
       presented in the record. 405 Ill. App. 3d at 752 (Hudson, J., specially concurring). While the
       dissent agreed with the special concurrence’s view of the promisee’s legitimate business
       interest, he would have reversed and remanded for further proceedings. Id. at 759 (O’Malley,
       J., dissenting).
¶ 46        “When a case is tried under an incorrect theory of law the appropriate action is to reverse
       the judgment and remand for a new trial.” Sparling v. Peabody Coal Co., 59 Ill. 2d 491, 496
       (1974). In the present case, the parties presented their evidence and fashioned their arguments
       based on the appellate court’s rigid and preclusive legitimate business interest test. The
       circuit court conscientiously applied this test in ruling that the noncompetition restrictive
       covenant was unenforceable. “Particularly where, as here, the ultimate issue–the

                                                 -11-
       reasonableness of the agreements–turns upon the totality of the facts and circumstances
       surrounding them, the parties must be given a full opportunity to develop the necessary
       evidentiary record.” Rollins Burdick Hunter of Wisconsin, Inc. v. Hamilton, 304 N.W.2d 752,
       757 (Wis. 1981). We observe that the circuit need not conduct an entirely new evidentiary
       hearing, but rather may allow the parties to supplement the existing record with any
       additional evidence and argument pertaining to the totality of the circumstances.

¶ 47                                    III. CONCLUSION
¶ 48       For the foregoing reasons, the judgment of the appellate court and the order of the circuit
       court of Du Page County are reversed, and the cause is remanded to the circuit court for
       further proceedings consistent with this opinion.

¶ 49      Judgments reversed;
¶ 50      cause remanded.

                                                -12-