Court Applies Reliable Fire
to 2 yr. Covenant: Enforceable
Tax Preparer Can’t Work On (Some of)
Former Employer’s Customers’ Returns
A tax preparer left one tax service firm for another, and the former employer went to court to stop her from competing. In Zabaneh Franchises LLC v. Walker, 2012 IL App (4th) 110215 (4th Dist July 2012), Zabaneh sought to enforce a covenant in Walker’s old employment contract that barred her, for two years, from working any of Zabaneh’s customers’ returns that she had worked on while at Zabaneh. The trial court refused to provide injunctive relief, but the court of appeals reversed.
The court applied the “totality of the circumstances” test under the Illinois Supreme Court’s decision in Reliable Fire Equipment Co. v. Arredondo, 2011 L 11871 (2011). The restraint was reasonable because at her new job Walker was free to prepare returns for customers of Zabaneh that she had not worked on when she worked there, and she also could provide tax-related services to those that she had serviced, as long as they did not involve returns.
Zabaneh had urged that a choice-of-law section in the contract applied, and that the court therefore had to follow Missouri law. But the appellate panel found that since Zabaneh had relied almost exclusively on Illinois caselaw in its briefs, it had waived its right to invoke the choice-of-law provision.
You can draft covenants that differentiate between competition of any kind over the former employer’s customers, and competition of some kind over these customers. This case teaches that the latter is going to be fair game for injunctive relief.