Illinois recently joined a growing list of states that have passed laws constraining the use of restrictive covenants by employers. The Illinois legislature passed Senate Bill 672 which imposes significant limitations on the use by Illinois employers of non-compete and non-solicitation agreements. The bill achieves this by amending the Illinois Freedom to Work Act to establish new requirements for agreements containing restrictive covenants and to codify standards for the use of non-solicitation agreements. Governor Pritzker is expected to sign the bill into law. Once signed by the governor the bill would take effect on January 1, 2022, though significantly the bill would not apply retroactively and would only apply to restrictive covenants entered into after this date.
Illinois’ Freedom to Work Act, originally passed in 2017, prohibited “covenants not to compete” for “low-wage employees,” defined as those earning the greater of minimum wage or up to $13.00 per hour. The Act only addressed covenants not to compete, leaving employers unsure as to whether the statutory limitations also applied to provisions prohibiting former employees from soliciting the employer’s employees or customers. The newly passed bill clears up that uncertainty by amending the Act to apply explicitly to non-solicitation agreements as well. The bill explicitly defines the term “covenant not to solicit” broadly as any agreement that “(1) restricts the employee from soliciting for employment the employer’s employees or (2) restricts the employee from soliciting, for the purpose of selling products or services of any kind to, or from interfering with the employer’s relationships with, the employer’s clients, prospective clients, vendors, prospective vendors, suppliers, prospective suppliers, or other business relationships.”
The bill additionally clarifies that “covenants not to compete” do not include confidentiality or nondisclosure agreements, trade secret protection agreements, invention assignment agreements or covenants, agreements by which the employee agrees not to reapply for employment to the same employer after termination of the employee or, importantly, agreements entered into in connection with purchase and sale transactions.
Significantly, the bill replaces the definition of “low-wage,” which referred only to hourly wages, with an annualized earnings requirement, joining states like Washington and Maine. The bill would prohibit employers from entering into non-compete agreements with employees who earn $75,000 per year or less. The bill incrementally increases the earning threshold every 5 years through 2037. The earning threshold increases to $80,000 per year beginning on January 1, 2027, $85,000 per year beginning on January 1, 2032, and $90,000 per year beginning on January 1, 2037. A covenant not to compete entered into in violation of the bill is void and unenforceable. Continue reading ›