Impact | Business Risk Management Blog

Jennifer Abruzzo, general counsel for the National Labor Relations Board (NLRB), issued a memorandum on May 30, 2023, finding that except in limited special circumstances, non-competition agreements – including the act of merely giving employees non-competition agreements or maintaining existing ones – violate Sections 7 and 8 of the National Labor Relations Act (Act). The memorandum states, “Except in limited circumstances, I believe the proffer, maintenance, and enforcement of such agreements violate Section 8(a)(1) of the Act.”

On January 5, 2023, the Federal Trade Commission (FTC) published a proposed rule that, if finalized, would ban all employer non-compete agreements. As currently written, the proposed rule finds that it is unfair competition for an employer to:

• Enter into or attempt to enter into a non-compete clause with a worker;
• Maintain a non-compete clause with a worker;
• Represent to a worker that the worker is subject to a non-compete clause where the employer has no good faith basis to believe that the worker is subject to an enforceable non-compete clause.

The Illinois Freedom to Work Act (“Act”) became effective on January 1, 2022. The Act prohibits employers from entering into covenants not to compete and covenants not to solicit with certain types of employees. Specifically, an employer cannot enter into a covenant not to complete with an employee unless that employee’s actual or expected annualized rate of earnings exceeded $75,000 per year. Similarly, an employer cannot enter into a covenant not to solicit with an employee unless that employee’s actual or expected annualized rate of earnings exceeded $45,000 per year.

The Illinois House and Senate have agreed on a version of the Illinois Freedom to Work Act, which is waiting for Governor Pritzker to sign into law. The Act puts restrictions on which employees can be subject to covenants not to compete and covenants not to solicit.

What constitutes “solicitation” in the context of a non-solicitation provision? A recent decision from the U.S. District Court for Central District of Illinois attempted to shed some light on that question.

Several bills are pending in the Illinois House of Representatives and Senate that, if signed into law, could radically change the landscape of the use of covenants not to compete and covenants not to solicit in Illinois. Employers should be aware of this pending legislation because, if passed, it could have serious ramifications for businesses in Illinois. 

Several times a year, business owners tell me that restrictive covenants (such as non-competition, non-solicitation or non-disclosure provisions) are not enforceable in Illinois. That is not true. The state and federal courts in Illinois enforce restrictive covenants on a routine basis. However, to be enforced, the restrictive covenants need to have been properly drafted and kept up to date with changes in the law. Put another way, in the majority of cases where the courts do not enforce the restrictive covenants, the restrictive covenants could have been drafted in such a way that they likely would have been upheld.

When it comes to protecting a company’s competitive advantage, it is important to know the difference between confidential information and trade secrets. Knowing the difference allows businesses to design and implement the appropriate measures to protect their information and secure their competitive advantage.

A recent case from the Illinois Appellate Court is a reminder to business owners of the need to be proactive in protecting their trade secrets and confidential information. In this case, three sales representatives left their employer, who was in the radio advertising business, and joined a competitor. When they left, the three sales representatives were alleged to have taken with them their sales and renewal lead lists to help them solicit customers for their new employer.

As COVID-19 continues to take its toll on the economy, some will be looking to avoid certain contractual obligations, while others will be looking to hold parties to their contractual obligations. For those looking to avoid their contractual obligations due to COVID-19 in Illinois, one defense being discussed is the doctrine of impossibility of performance.