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What Does the Illinois Freedom to Work Act Mean for Employers Using Restrictive Covenants?
By Thadford Felton on October 28, 2022 at 12:00 PM

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.

In addition, if an employer enters into a covenant not to compete or covenant not to solicit with an employee, the Act sets forth certain employee notification requirements. Before the employee enters into an agreement containing either or both covenants, the employer must advise the employee in writing to consult with an attorney. The employer must also provide the employee with a copy of the covenant(s) at least 14 days prior to the start of employment or, if the employee has already started employment, the employer must provide the employee with at least 14 days to review the covenant(s). However, the employee can voluntarily elect to sign the covenant(s) before the expiration of the 14-day period.

Finally, the Act provides that the covenant not to compete and covenant not to solicit are illegal and void unless:

  • Adequate consideration is given to the employee;
  • The restrictive covenant is ancillary to a valid employment relationship;
  • The restrictions in the covenant are no greater than necessary to protect the legitimate business interests of the employer;
  • The restrictive covenant does not impose an undue hardship on the employee; and
  • The restrictive covenant is not injurious to the public.

Of the points above, maybe the most important is whether the restrictions contained in the covenants are no greater than necessary to protect the legitimate business interests of the employer. The Act provides that the factors to be considered in this analysis include the following:

  • The employee’s exposure to the employer’s customer relationships or other employees and the near permanence of the relationships the employer has with its customers.
  • The employee’s acquisition, use, or knowledge of confidential information through the employee’s employment.
  • The time, place and scope of activity restrictions.

In light of the Act and its codification of Illinois case law that has developed around the reasonableness of restrictive covenants, employers should pay special attention when using restrictive covenants. The Act is clear that each restrictive covenant must be evaluated on the facts of each individual case and that identical restrictive covenants might be reasonable and valid under one set of circumstances, but unreasonable and invalid under another set of circumstances. However, restrictive covenants are still alive and well in Illinois and are a valuable tool in a business owner’s toolbox to protect their competitive edge when drafted appropriately.  

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