Over the last few years several states have enacted or amended laws to corral the use of employee non-compete and non-solicit agreements. Keeping pace with those states, Illinois recently made critical amendments to its existing non-compete/non-solicit law (the Illinois Freedom to Work Act) that are set to go into effect, and apply to agreements entered into after, January 1, 2022. Here we review some of the major changes to the law and the practical implications for Illinois employers.
Agreements Reserved for Higher Paid Employees
Shifting away from its previous prohibition against imposing restrictive covenants on “low wage earners,” (those earning less than minimum wage, or $13.00 per hour — or approximately $27,000 per year) the legislature set higher, more concrete thresholds. Specifically, the revisions to the law make clear that employers:
cannot impose non-compete agreements on employees who earn less than $75,000 per year (set to increase to $80,000 in 2027, $85,000 in 2032, and $90,000 in 2037); and
cannot impose non-solicit agreements on employees who earn less than $45,000 per year (set to increase to $47,500 in 2027, $50,000 in 2032, and $52,500 in 2037).
Enforcement After Layoff or Furlough
In some states it is unclear if an employee who is laid off due to no fault of their own would remain subject to a non-compete or a non-solicitation agreement. With these recent changes, however, the answer in Illinois has become clearer: a non-compete or non-solicit agreement entered into after the amendment’s effective date is not enforceable against an employee who is terminated, laid off, or furloughed (presumably without cause) “as the result of business circumstances or governmental orders related to the COVID-19 pandemic or under circumstances that are similar to the COVID-19 pandemic,” unless certain post-employment compensation is provided. What remains an open question, however, is what circumstances, if any, might be considered “similar to the COVID-19 pandemic.”
Employers are now required to:
advise the employee in writing to consult with an attorney before signing the non-compete or non-solicitation agreement; and
give the employee a copy of the agreement at least 14 calendar days before their employment is set to begin (or at least 14 days to review the agreement).
The law does not explicitly state whether an agreement with new hires must be signed before the employment relationship begins, but does provide that an employer is in compliance, “even if the employee voluntarily elects to sign the covenant before the expiration of the 14-day period.”
Settling a nearly decade-long debate among the Illinois state and federal courts about whether and how much continued employment can serve to support a restrictive covenant, the legislature codified the Illinois First District Appellate Court’s 2013 ruling in Fifield v. Premier Dealer Servs., Inc., that at an employee must be provided with at least two years of employment to support the agreement, absent other valid consideration. However, a shorter period of continued employment can support a restrictive covenant if the employee is also given “additional professional or financial benefits.” The legislature also made clear that “merely professional or financial benefits adequate by themselves” could suffice. This leaves open the possibility that purely financial consideration, or even “professional benefits” like a promotion or increased exposure to customer contacts could feasibly serve as “adequate consideration” in specific circumstances.
Enforcement by Illinois Attorney General
The legislature gave explicit authority to the Illinois attorney general to initiate or intervene in a lawsuit to “obtain appropriate relief” when there is “reasonable cause to believe that any person or entity is engaged in a pattern and practice prohibited by this Act.” In doing so, the attorney general is also charged with investigatory powers and the ability to compel compliance with investigative demands/subpoenas. In addition to seeking monetary damages, restitution, and equitable relief, the attorney general can request imposition of civil penalties of $5,000 per violation, or $10,000 for each repeat violation within a five-year period.
Though some questions remain, these changes provide both employers and employees useful clarity regarding the imposition of non-compete and non-solicit agreements in Illinois going forward.
The text of the Illinois Freedom to Work Act can be found here.