The Supreme Courts of Illinois and Virginia recently weighed in on restrictive covenant agreements clarifying the enforceability of such employment agreements in their states. The Supreme Court of Illinois, in Reliable Fire Equipment Co. v. Arredondo, held that an employer must establish a legitimate business interest based on the totality of the facts and circumstances to support a restrictive covenant agreement. Factors such as the near-permanence of the customer relationships to be protected, the employee's acquisition of trade secrets or confidential information, and time and place restrictions within the covenant are all to be considered and weighed. Additionally, the Supreme Court of Virginia held, in Home Paramount Pest Control Cos. v. Shaffer, that a restrictive covenant prohibiting work for a competitor in any capacity is unenforceable. In so doing, the Court overruled its own 1989 decision in Paramount Termite Control Co. v. Rector, which upheld a virtually identical agreement. The Court stated that, if an employer is not going to confine the functional element of its non-compete provision to those activities in which it actually engages, it must bear the burden of providing a legitimate business interest in prohibiting the former employee from engaging in any conceivable activity while employed by a competitor.
These decisions serve as a reminder that a one-size-fits-all approach to restrictive covenant agreements for multi-state employers may be detrimental to enforcement. Restrictive covenant agreements must be designed with the particular states involved in mind.
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