Big Changes to Illinois Non-Competition and Non-Solicitation Law: Amendments to the Illinois Freedom to Work Act

Introduction

Big changes are afoot with respect to Illinois non-competition and non-solicitation law.  Illinois is ahead of the curve when compared with the federal government.  Whereas President Biden’s recent executive order only requested that the FTC adopt rules to limit restrictive non-competition and non-solicitation clauses, the Illinois legislature recently passed amendments to the Illinois Freedom to Work Act (Act) that Governor Pritzker is expected to sign into law.  The amendments would be effective January 1, 2022 and make it more challenging for Illinois employers to enter into enforceable non-competition and non-solicitation agreements with their employees.  Employers should take note of the amendments and prepare accordingly.

Brief Overview of the Act as It Currently Exists

As currently written, the Act only forbids non-competition agreements between an employer and a “low-wage employee.”  Notably, the Act, currently does not contain any limitation on non-solicitation provisions. 

Brief Overview of the Amendments to the Act

The amendments to the Act are expansive.  Significantly, they extend the Act’s restrictions to also prohibit non-solicitation agreements with certain employees.  Moreover, the ability of employers to proscribe non-competition and non-solicitation agreements will be limited to employees with much higher earnings thresholds than the current Act.  The amendments will thus limit the universe of employees potentially subject to non-competition and non-solicitation provisions.  The amendments also grant employees several protections.  Below are some highlights.

Non-Competition Agreement Restrictions

1. Non-competition agreements are only allowed for employees earning over $75,000 per year.  Beginning 1/1/27, the figure will increase $5,000 every 5 years up to and including 2037.
2. Covers agreements limiting work for another employer for a period of time, restricting work within a specified geographic area or prohibiting work for another employer that is “similar to [the] employee’s work” for the employer.
3. Also covers agreements that impose financial penalties for competitive activities after termination of employment.
4. Excludes agreements prohibiting disclosure of confidential or trade secret information, invention assignment agreements, covenants or agreements in connection with the sale of goodwill of a business or disposal of an ownership interest, certain termination agreements, agreements to not reapply after termination, and others.

Non-Solicitation Agreement Restrictions

1. Non-solicitation agreements are only allowed for employees earning over $45,000 per year.  Beginning 1/1/27, the figure will increase $2,500 every 5 years up to and including 2037.
2. Non-solicitation agreements are defined to include covenants against soliciting employees, customers, vendors, or even interfering with prospective relationships.

Prohibitions upon Certain Terminations

1. Non-solicit and non-compete agreements are generally not allowed as part of a termination or furlough due to COVID or similar circumstances.
2. Such restrictions are acceptable when they include paying employees their base salary through the period of enforcement, less any other amounts they earn from another job.

Adequate Consideration

1. Adequate consideration for such restrictions is either (a) the employee continuing work for the employer for 2 years after signing the restrictive covenant, and/or (b) additional financial or professional consideration sufficient to support the non-compete or non-solicit covenant.
2. An employee terminating his or her employment prior to two years can invalidate the covenant if there was not separate financial and/or professional consideration.  Thus, offering financial and/or professional benefits is advisable.

Requirements to Inform Employees to Consult with an Attorney and Give Time to Review Covenant

The amendments provide that a non-competition or non-solicitation covenant is illegal and void unless: (1) the employer advises the employee in writing to consult with an attorney before entering into the covenant, and (2) the employer provides the employee with a copy of the covenant at least 14 calendar days before the commencement of the employee’s employment or the employer provides the employee with at least 14 calendar days to review the covenant. 

Remedies

The amendments include an employees’ only attorneys’ fees provision.  This unilateral attorneys’ fees provision requires employers to exercise extreme caution when drafting and endeavoring to enforce such covenants.  The amendments grant the Illinois Attorney General discretion to initiate or intervene in a civil action if there is reasonable cause to believe there is a pattern and practice that the Act as amended prohibits.

Next Steps If signed into law, the amendments to the Act will become effective on January 1, 2022.  The changes will neither be retroactive nor affect existing non-competition and non-solicitation agreements.  This leaves a window of time for employers to verify whether their existing agreements are enforceable under current law.  In this regard, employers will want to ensure that their existing non-competition and non-solicitation agreements provide employees with specific and special consideration to support the restrictions.  It also leaves time for employers to prepare agreements for employees that will be enforceable under the Act’s amendments come January 1, 2022.  Among other things, employers should review whether employees meet the forthcoming $75,000 and $45,000 earning thresholds.  Given the 14-day review requirement under the amendments, employers may also want to review and revise their hiring protocols and timetables for hiring employees who will be subject to non-competition and non-solicitation agreements.  Because of the many significant amendments to the Act, employers should consult with their legal counsel to discuss their individual situations.