July 28, 2021
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
Non-Solicitation Agreement Restrictions
Prohibitions upon Certain Terminations
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.
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.