Illinois initially regulated restrictive covenants with the Freedom to Work Act in 2017 by prohibiting “covenants not to compete” for “low-wage employees,” defined as those making legal minimum wage or less than $13.00 per hour, whichever is greater. It was unclear whether the law’s definition of “covenants not to compete” included covenants not to solicit customers or employees. The amendments to the Freedom to Work Act now clearly applies to both non-compete and non-solicitation agreements entered into after 2021.
Effective January 1, 2022, changes to employee non-compete agreements and non-solicitation agreements in Illinois will be as follows:
- Prohibition of the use of non-competes for employees making less than $75,000 per year in earnings (including any commissions or bonuses). The threshold will increase over time (by $5,000 every five years) until the threshold becomes $90,000 in January 2037.
- Prohibition on the use of customer and employee non-solicitation agreements for employees making less than $45,000 per year in earnings. The threshold will increase in $2,500 increments every five years until it becomes $52,500 in January 2037.
Non-compete and non-solicitation agreements will be void and illegal unless the employer advises the employee in writing to consult with an attorney prior to signing the agreement and further provides the employee with at least 14 calendar days to review the agreement.
Further, the amendments prohibit the use of non-competes for employees who are terminated or furloughed because of COVID-19 or “circumstances that are similar to the COVID-19 pandemic” unless certain compensation is provided and bans non-compete agreements for certain, specified union employees who are bound by collective bargaining agreements.
The amendments also:
- Mandate the recovery of attorneys’ fees and costs by an employee who prevails in a lawsuit brought by the employer seeking to enforce a covenant not to compete or covenant not to solicit.
- Clarify that the determination of whether an employer has a legitimate business interest that may justify use of a covenant not to compete or covenant not to solicit is judged by the “totality of the facts and circumstances.”
- Permit courts, in some circumstances and in the court’s discretion, to reform or sever provisions of a non-compete or non-solicitation agreement rather than hold them unenforceable, while noting that “extensive” reformations may be against Illinois public policy.
- Grant the Illinois Attorney General the right to initiate investigations and initiate or intervene in any civil action to compel compliance whenever the Attorney General has reasonable cause to believe that any employer has engaged in a pattern and practice prohibited by the new law. The Attorney General will have subpoena power to investigate potential violations and may request a court to impose civil penalties not to exceed $5,000 for each violation or $10,000 for each repeat violation within a five-year period. Each person who is subject to an agreement in violation of the new law will constitute a separate and distinct violation.
- Clarify that the following are not considered to be “covenants not to compete”:
- a confidentiality clause;
- a clause protecting a company’s trade secrets or inventions;
- a non-compete agreement entered into in connection with the acquisition or sale of an ownership interest in a business; and
- a clause requiring advance notice of termination during which the employee remains employed and receives compensation.
Employers should consult with counsel to prepare updated template agreements to ensure that their non-compete and non-solicitation agreements contain the most up-to-date provisions for enforceability.
