Court Opinion

ID: 9527745
Source: CourtListenerOpinion
Date Created: 2023-08-07 03:33:45.753096+00
Date Added: 2024-06-11T13:26:10.763446
License: Public Domain

PRESIDING JUSTICE STEIGMANN, specially concurring: Although I agree with the result in this case, I specially concur because the majority opinion, in determining the enforceability of this restrictive covenant, uses the “legitimate-business-interest” test that I believe is no longer valid, if it ever was. I. THE “LEGITIMATE-BUSINESS-INTEREST” TEST For over three decades, the Illinois Appellate Court has held that courts will not enforce a restrictive covenant that bars a former employee from competing with his former employer, unless the terms “are reasonable and necessary to protect an employer’s legitimate business interests.” Hanchett Paper Co. v. Melchiorre, 341 Ill. App. 3d 345, 351, 792 N.E.2d 395, 400 (2003). In Hanchett, the Second District Appellate Court explained this rule as follows: “A legitimate business interest exists where: (1) because of the nature of the business, the customers’ relationships with the employer are near permanent and the employee would not have had contact with the customers absent the employee’s employment; and (2) the employee gained confidential information through his employment that he attempted to use for his own benefit.” Hanchett, 341 Ill. App. 3d at 351, 792 N.E.2d at 400. Every district of the appellate court, including this one, has used similar language in restrictive-covenant cases. See Office Mates 5, North Shore, Inc. v. Hazen, 234 Ill. App. 3d 557, 569, 599 N.E.2d 1072, 1080 (1992) (First District); Dam, Snell & Taveirne, Ltd. v. Verchota, 324 Ill. App. 3d 146, 151-52, 754 N.E.2d 464, 468-69 (2001) (Second District); Lyle R. Jager Agency, Inc. v. Steward, 253 Ill. App. 3d 631, 636, 625 N.E.2d 397, 400 (1993) (Third District); Springfield Rare Coin Galleries, Inc. v. Mileham, 250 Ill. App. 3d 922, 929-30, 620 N.E.2d 479, 485 (1993) (Fourth District); Carter-Shields v. Alton Health Institute, 317 Ill. App. 3d 260, 268, 739 N.E.2d 569, 575-76 (2000) (Fifth District). However, the Supreme Court of Illinois has never embraced this test, and its application is inconsistent with recent supreme court decisions concerning restrictive covenants. Accordingly, the test should be abandoned. II. THE ORIGIN OF THE “LEGITIMATE-BUSINESS-INTEREST” TEST The “legitimate-business-interest” test (although not identified by that name) first appeared in the First District Appellate Court’s decision in Nationwide Advertising Service, Inc. v. Kolar, 28 Ill. App. 3d 671, 673, 329 N.E.2d 300, 301-02 (1975). In that case, an advertising agency sought to enforce a restrictive covenant against its former employee and appealed denial of enforcement, arguing 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.” (Emphasis added.) Kolar, 28 Ill. App. 3d at 673, 329 N.E.2d at 301. In summarizing the principles that underpinned the appellate court’s earlier analysis in the same case (Nationwide Advertising Service, Inc. v. Kolar, 14 Ill. App. 3d 522, 302 N.E.2d 734 (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, 281 N.E.2d 648; Canfield v. Spear (1969), 44 Ill. 2d 49, 254 N.E.2d 433.)” Kolar, 28 Ill. App. 3d at 673, 329 N.E.2d at 301-02. Although the Kolar court cites the supreme court’s decisions in Cockerill and Canfield as authority for the “legitimate-business-interest” test, neither of those cases used that test in the restrictive-covenant analyses they contained. See Canfield, 44 Ill. 2d at 51, 254 N.E.2d at 434 (stating that in restrictive-covenant cases “where the limitation as to time and territory is not unreasonable, the agreement is valid and enforceable, and relief by injunction is customary and proper”); Cockerill, 51 Ill. 2d at 183-84, 281 N.E.2d at 650-51 (“[covenants *** involving performances of professional services have been held valid and enforceable when the limitations as to time and territory are not unreasonable”). Instead, it appears that the Kolar court’s analysis has devolved into the “legitimate-business-interests” test, which the appellate courts have created “out of whole cloth.” For the last 32 years, the “legitimate-business-interest” test has been cited in one form or another by all of the districts of the Illinois Appellate Court when deciding restrictive-covenant cases. Due to the sheer volume of cases appellate courts handle, they are often required to address cases of first impression and must develop the common law and nuanced analysis. We appellate judges often endeavor to develop bright-line rules or tests, both to inform our analysis and to assist the bench and bar in future cases. Nonetheless, good practice requires us from time to time to look back to what our supreme court has said, earlier and most recently, to make sure our analyses remain consistent with supreme court doctrine. III. SUPREME COURT OF ILLINOIS DOCTRINE REGARDING ENFORCEABILITY OF RESTRICTIVE COVENANTS A. Early Cases The earliest supreme court case dealing with restrictive covenants is Hursen v. Gavin, 162 Ill. 377, 44 N.E. 735 (1896), in which the plaintiff, who had been engaged in the livery and undertaking business in Chicago, sued to enforce a restrictive covenant restraining the defendant, his former partner, from engaging in the same business in Chicago for five years. The supreme court affirmed the trial court’s grant of the injunction restraining the defendant and explained as follows: “A contract in restraint of trade is *** total and general, when by it a party binds himself not to carry on his trade or business at all, or not to pursue it within the limits of a particular country or State. Such a general contract in restraint of trade necessarily works an injury to the public at large and to the party himself in the respects indicated, and is, therefore, against public policy. 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. *** A contract in restraint of trade, to be valid, must show that the restraint imposed is partial, reasonable[,] and founded upon a consideration capable of enforcing the agreement. *** Where the restriction embraces too large a territory, it will be unreasonable and void ***. [Citations.] * * *** [The contract in this case was valid and enforceable because it] was only in partial restraint of trade. It was limited in time to the period of five years, and in space to the city of Chicago.” Hursen, 162 Ill. at 379-82, 44 N.E. at 735-36. In Ryan v. Hamilton, 205 Ill. 191, 197, 68 N.E. 781, 783 (1903), the supreme court reversed the appellate court and upheld the trial court’s grant of an injunction restraining the defendant from practicing general medicine “in or within” eight miles of the village of Viola in Mercer County, explaining as follows: “Contracts of this class, where the limitation as to territory is reasonable and there exists a legal consideration for the restraint, are valid and enforceable in equity, and in such cases relief by injunction is customary and proper.” In Bauer v. Sawyer, 8 Ill. 2d 351, 354, 134 N.E.2d 329, 331 (1956), the supreme court upheld enforcement of another restrictive covenant regarding a former partner who was enjoined from practicing medicine and noted that “[t]he principles governing cases of this kind were stated in Ryan v. Hamilton.” The Bauer court added the following: “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.” Bauer, 8 Ill. 2d at 355, 134 N.E.2d at 331. In making these observations, the supreme court cited its earlier decision in Hursen. B. The Most Recent Supreme Court Decision The supreme court’s most recent decision on the enforceability of a restrictive covenant was Mohanty, 225 Ill. 2d 52, 866 N.E.2d 85. In Mohanty, a group of physicians filed a declaratory judgment action against their employer, alleging that the restrictive covenants in their employment contracts were void as against public policy and unenforceable. The employer counterclaimed for declaratory judgment and injunctive relief, and the supreme court ultimately held that the employer was entitled to a preliminary injunction to enforce the restrictive covenants. Mohanty, 225 Ill. 2d at 78, 866 N.E.2d at 100. Notably, in reaching its decision, the supreme court made no mention of the “legitimate-business-interest” test, despite over three decades of its use by the appellate court. Initially, the Mohanty court rejected the physicians’ contention that restrictive covenants in physician employment contracts should be held void as against public policy in Illinois. The supreme court explained as follows: “[W]e note that this court has a long tradition of upholding the right of parties to freely contract. [Citation.] Consequently, our decisions have held that a private contract, or provision therein, will not be declared void as contrary to public policy unless it is ‘ “clearly contrary to what the constitution, the statutes or the decisions of the courts have declared to be the public policy” ’ or it is clearly shown that the contract is 1 “manifestly injurious to the public welfare.” ’ [Citations.] *** As a result, plaintiffs carry a heavy burden of showing that restrictive covenants in physician employment contracts are against the public policy of this state.” Mohanty, 225 Ill. 2d at 64-65, 866 N.E.2d at 92-93. The supreme court later repeated these same criteria when it concluded that “plaintiffs have failed to show that physician restrictive covenants are contrary to the constitution, statutes or judicial decisions of this state. Nor have they shown that these covenants are manifestly injurious to the public welfare.” Mohanty, 225 Ill. 2d at 69, 866 N.E.2d at 95. The physicians also challenged the restrictive covenants in their employment contracts as unenforceable “because they [were] unreasonably overbroad in their temporal and activity restrictions.” Mohanty, 225 Ill. 2d at 75, 866 N.E.2d at 98. The supreme court rejected this claim, explaining as follows: “As noted earlier in this opinion, this 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. Cockerill v. Wilson, 51 Ill. 2d 179, 183-84[, 281 N.E.2d 648] (1972); Canfield v. Spear, 44 Ill. 2d 49[, 254 N.E.2d 433] (1969); Bauer v. Sawyer, 8 Ill. 2d 351[, 134 N.E.2d 329] (1956). ‘ “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.]” Mohanty, 225 Ill. 2d at 76, 866 N.E.2d at 98-99. Consistent with the above criteria, the supreme court considered the parties’ evidence to determine whether the limitations set as to time (three years) and territory (a five-mile radius) were unreasonable and concluded that they were not. Thus, the supreme court determined that a restrictive covenant that restrained cardiologists from practicing medicine was enforceable, and the supreme court reached this conclusion without relying upon — or even mentioning — the “legitimate-business-interest” test. As Sherlock Holmes would observe, this is the case of the dog that did not bark. IV EPILOGUE In this case, the parties argue — and the majority opinion discusses — the need for the employer, Lifetec, to overcome the “legitimate-business-interest” test to prevail in its effort to enforce a restrictive covenant against one of its salesmen. Yet, the supreme court in Mohanty enforced a restrictive covenant that undermined the physician/patient relationship without even acknowledging the existence of the “legitimate-business-interest” test. It makes no sense to place a greater burden on employers of salespeople than on employers of physicians when the enforceability of noncompete covenants is at issue. Surely the physician-patient relationship and access to medical care are more societally significant concerns than any concerns related to the relationship between a retailer of medical products and its sales force. I find support for this view in Justice Freeman’s partial concurrence in Mohanty, where he wrote, “a strong case exists for abolishing all physician restrictive covenants as being against public policy. However, I agree that this decision is for the General Assembly to make.” Mohanty, 225 Ill. 2d at 86, 866 N.E.2d at 104 (Freeman, J., concurring in part and dissenting in part). The lesson of Mohanty is that courts at any level, when presented with the issue of whether a restrictive covenant should be enforced, should evaluate only the time and territory restrictions contained therein. If the court determines that they are not unreasonable, then the restrictive covenant should be enforced. In this case, the majority opinion notes that “[t]he reasonableness of the terms of the covenants as to time and territory is not in dispute.” 377 Ill. App. 3d at 269. At oral argument, defendants’ counsel conceded that the terms of the restrictive covenant were reasonable. The majority’s observation that the reasonableness of the terms of the covenants as to time and territory are not in dispute should have ended our analysis. The employer has no additional burden to prove a “protectable” or “legitimate” business interest to support enforcement. 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. We need not await the supreme court’s explicit and emphatic rejection of that test before rejecting it ourselves, especially when, as here, continued fealty to it runs counter to Supreme Court of Illinois doctrine.