On August 13, 2021, Illinois enacted a new law, amending the Illinois Freedom to Work Act (the “Act”) to limit the enforceability of non-competition and non-solicitation agreements between employers and employees in Illinois. The restrictions apply only to contracts entered into on or after January 1, 2022.
As we expected, the amended Act introduces several new constraints on covenants not to compete in the workplace. Among these are the following restrictions in the Act which will undoubtedly make it more challenging for employers to enforce non-competes in Illinois:
- Prohibits covenants not to compete for employees making less than $75,000 per year in earnings (including any commissions or bonuses). This threshold will increase over time (by $5,000 every five years) until the threshold becomes $90,000 in January 2037.
- Makes covenants not to compete or not to solicit void and illegal unless the employer: (a) provides employees 14 days to review an agreement containing a covenant not to compete or not to solicit and (b) advises the employee in writing to discuss the agreement with an attorney.
- Codifies the “two-year rule” followed by certain Illinois state courts, requiring either (a) two years of employment or (b) alternative “adequate” consideration to make a non-compete or non-solicitation agreement enforceable.
- Bans enforcement of covenants not to compete for employees who are terminated or furloughed as a result of COVID-19 or “circumstances that are similar to the COVID-19 pandemic” unless certain compensation is provided to the employee.
The Act now also restricts covenants not to solicit customers and employees by prohibiting employers from enforcing customer non-solicitation agreements and employee non-solicitation agreements for employees making less than $45,000 per year in earnings. This threshold will increase in $2,500 increments every five years until it becomes $52,500 in January 2037.
The amended Act further provides, as an additional remedy, that if an employee prevails on a claim to enforce a covenant not to compete or covenant not to solicit, the employee will recover all reasonable attorneys’ fees and costs regarding such claim from the employer.
This new Act follows on President Biden’s Executive Order Promoting Competition in the America Economy from July 9, 2021 in which President Biden encouraged the Federal Trade Commission (FTC) to ban or limit non-compete agreements.
These ground-breaking amendments now make Illinois one of the most difficult states nationwide when it comes to enforcing covenants not to compete or solicit against employees. If you haven’t done so already, now is the time for Illinois employers to review their existing non-compete and non-solicit agreements to ensure these agreements are enforceable pursuant to the amended Act.
At ByrdAdatto we are working hard to ensure our clients are well equipped and ready for operating their business. If you have questions regarding this alert, reach out to info@byrdadatto.com or call 214.291.3200.
