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Illinois Employers: Are Your Non-Competes in Order?
By T. Christopher Bailey on September 24, 2021 at 10:45 AM

In August 2021, Illinois Gov. J.B. Pritzker signed into law amendments to the Illinois Freedom to Work Act that will dramatically change the use of non-compete and non-solicitation agreements by Illinois employers. These amendments become effective January 1, 2022, and apply only to agreements entered into after that date.

As noted in our previous blog post about the Freedom to Work Act, among the significant changes included in these amendments are earnings requirements. Beginning January 1, 2022, an employer cannot enter into a non-compete agreement with an employee whose annualized rate of earnings is less than $75,000 per year. That amount increases to $80,000 on January 1, 2027; to $85,000 on January 1, 2032; and to $90,000 on January 1, 2037. 

Similarly, an employer cannot enter into a non-solicitation agreement with an employee whose annualized rate of earnings is less than $45,000 per year. That amount increases to $47,500 on January 1, 2027; to $50,000 on January 1, 2032; and to $52,500 on January 1, 2037. Non-compete and non-solicitation agreements that do not comply with these requirements are void and unenforceable.

The amendments also create questions regarding whether an employee receives “adequate consideration” in exchange for the employee’s covenants. The amendments define “adequate consideration” as employment for at least two years after the agreement is signed or other “consideration adequate to support an agreement not to compete or to not solicit,” which may consist of a period of employment plus financial benefit to the employee or financial benefits by themselves.

Employers also must provide employees with proper notice and time to consider whether to enter into a non-compete or non-solicitation agreement. In order for a non-compete/non-solicitation agreement to be valid, the employer must advise the employee in writing to consult with an attorney before entering into the agreement and must provide the employee at least 14 calendar days to review the agreement (the employee need not wait the full 14 days before signing).

The amendments also contain restrictions on covenants not to compete or not to solicit entered into as part of a severance package where an employee is terminated or laid off as a result of business circumstances or governmental order related to the COVID-19 pandemic or similar circumstances. In such a case, a non-compete or non-solicitation agreement is void and unenforceable unless the employer provides the employee compensation equivalent to the employee’s base salary (less any compensation earned through subsequent employment) for the restricted period.

The amendments expressly prohibit non-compete or non-solicitation agreements involving employees subject to collective bargaining agreements covered by the Illinois Public Labor Relations Act or the Illinois Labor Relations Act. In addition, agreements involving employees in the construction industry are similarly void and unenforceable unless the employee primarily performs management, engineering, architectural, design or sales functions or are shareholders, partners or owners of the company.

Courts will retain their power to rewrite or reform overly broad restrictive covenants; however, the amendments also provide that extensive revision may be contrary to public policy, in which case a court may declare the agreement void and unenforceable.

Also important for employers to consider: The amendments impose consequences for employers who impose and enforce overly broad agreements. The amendments create a private right of action by an employee against an employer if the employee prevails in an attempt to enforce a covenant not to compete or solicit. Among the remedies available to the employee is the right to recover costs and attorneys’ fees in defending such an attempt. In addition, the amendments provide that the Illinois Attorney General’s Office may initiate or intervene where it appears an employer has engaged in a pattern and practice of violating the Freedom to Work Act and may seek, among other remedies, civil penalties against the employer.

It is important to note that the term “covenant not to compete” does not include confidentiality agreements, agreements not to disclose trade secrets, or invention assignment agreements. The amendments also do not apply to covenants or agreements entered into as part of the purchase or sale of a business (or its goodwill), or an agreement pertaining to the acquisition or disposition of an ownership interest.

Illinois employers who regularly use or require their employees to enter into non-compete or non-solicitation agreements should become aware of these amendments and plan now to adjust their use of these agreements to ensure compliance with the amendments.

If you have questions or would like to discuss how the amendments to the Freedom to Work Act will affect your business, please contact Chris Bailey at (314) 345-4727 or or one of the other attorneys in Greensfelder’s Employment & Labor Practice Group.

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