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.
Similarly, the bill also would prohibit employers from entering into non-solicit agreements with employees who earn $45,000 per year or less. As with the minimum earnings threshold for covenants-not-to-compete, the salary threshold for non-solicitation agreements would increase every five years by $2,500 until January 1, 2037, when the amount would equal $52,500. The bill makes clear that the earning thresholds take into consideration not only salary but all forms of taxable compensation including tips, earned bonuses and earned commissions.
Other notable requirements of the bill include a provision that requires employers to advise employees of their right to consult with an attorney before entering into a covenant not to compete or a non-solicit agreement. Employers must also provide employees with at least 14 days to review the agreement containing a restrictive covenant before they are forced to decide whether to sign it, though employees are not required to wait the full 14 days before signing such an agreement.
The bill also codifies what consideration is required to support a restrictive covenant. The bill states that a restrictive covenant is supported by “adequate consideration” if (1) the employee worked for the employer for at least 2 years after the employee signed an agreement containing a covenant not to compete or a covenant not to solicit; or (2) the employer otherwise provided consideration adequate to support an agreement to not compete or to not solicit, which can consist of a period of employment plus additional professional or financial benefits or merely professional or financial benefits adequate by themselves. This has been the topic of much litigation in recent years, as we have written about here.
Finally, the bill prohibits employers from entering into restrictive covenants with employees who lost their jobs during the COVID-19 pandemic or under circumstances that are similar to the COVID-19 pandemic unless enforcement of the covenant not to compete includes compensation equivalent to the employee’s base salary at the time of termination for the period of enforcement minus compensation earned though subsequent employment during the period of enforcement.
If an employee prevails on a claim to enforce a covenant not to compete or a covenant not to solicit, the bill provides that the employee will be entitled to recover all costs and reasonable attorney’s fees from the employer regarding such claim. It also provides that a court or arbitrator may award appropriate relief in addition to costs and attorney’s fees. It remains to be seen whether an employee will be entitled to such remedies where a court only partially enforces a covenant not to compete or a covenant not to solicit or enforces such a covenant only after reforming aspects of it.
Whether you are a business owner who is, or is considering, asking your employees to sign a non-compete agreement or an employee being asked to sign one, it is always advisable to seek the assistance of an attorney experienced in restrictive covenant and non-compete law. The Chicago and Wheaton non-compete agreement attorneys at Lubin Austermuehle are among the best non-compete attorneys in the Chicagoland area with over thirty years of experience defending and prosecuting non-compete agreements and unpaid wages and a wide variety of other business dispute lawsuits. Lubin Austermuehle, a firm of Chicago business dispute attorneys, handles litigation for individuals and businesses of all sizes, including small or closely held businesses for whom competition from an ex-employee can be a serious threat.
Super Lawyers named Illinois commercial law trial attorney Peter Lubin a Super Lawyer and Illinois business dispute attorney Patrick Austermuehle a Rising Star in the Categories of Business Litigation, Class Action, and Consumer Rights Litigation. Lubin Austermuehle’s Illinois business litigation trial lawyers have more than three decades of experience litigating complex non-compete agreement, non-solicitation agreement, class-action, trade secret, and libel suits. Our DuPage county business dispute and restrictive covenant lawyers also handle emergency non-compete litigation involving temporary restraining orders and preliminary injunctions. We also assist Chicago, Cook, and DuPage County area businesses and business owners who are victims of fraud. You can contact us by calling at 630-333-0333. You can also contact us online here.