Illinois Changes the Legal Landscape for Non-Compete Agreements (AKA Restrictive Covenants)

We are frequently asked by clients whether the restrictive covenants (non-compete provisions) in their employment agreements are enforceable. The answer varies from state-to-state and must often be evaluated on a case-by-case basis. Generally, a non-compete provision restricts an employee from engaging in competitive activities for a period after the employment relationship terminates. Recent amendments to the Illinois Freedom to Work Act (“Act”) impose new restrictions on non-compete provisions in effect after January 1, 2022.  Below are the highlights:

Salary Thresholds

As amended, the Act prohibits restrictive covenants with employees earning less than $75,000 annually. The salary threshold amount will increase by $5,000 in 2027, 2032, and 2037. By January 1, 2037, a restrictive covenant will not be enforceable for employees earning less than $90,000 per year.

Notice Requirements

The Act requires that all employees be given time to think over a proposed restrictive covenant before signing a contract. Restrictive covenants are only valid if the employer (1) advises the employee in writing to consult an attorney before signing the Agreement and (2) provides the employee a copy of the restrictive covenant 14 days before the employee is required to sign it.

COVID-19 Restrictions

The Act prohibits employers from entering into restrictive covenants with employees who are terminated, furloughed, or laid off as the result of business circumstances or governmental orders related to the COVID-19 pandemic. If the employer wants to enforce the restrictive covenant in such circumstances, the employee must receive compensation equal to the employee’s base salary at the time of termination for the period of enforcement minus compensation earned through subsequent employment during the period of enforcement. Otherwise, the restrictive covenant is void and unenforceable.

Adequate Consideration and Reasonableness

The Act requires adequate consideration, which means the employees must either work for the employer for at least two years or the employer must offer some other valuable consideration that is tied specifically to the non-compete.

In addition, the Act provides that a restrictive covenant is reasonable if it is no greater than is required to protect the legitimate business interest of the employer. The reasonableness of the restrictive covenant is determined by looking at the totality of the facts and circumstances, which include, but are not limited to, the following:

1. The employee’s exposure to the employer’s customer relationships or other employees,
2. The near-permanence of customer relationships,
3. The employee’s acquisition, use, or knowledge of confidential information through the employee’s employment,
4. The time restrictions, the place restrictions, and the scope of the activity restrictions.

Remedies

The Act provides that an employee is entitled to recover all costs and all reasonable attorneys’ fees if an employee prevails on a claim to enforce a non-compete.

Enforcement

In the event the Illinois Attorney General has reasonable cause to believe that an employer is violating the Act, the Attorney General may pursue action and impose monetary penalties.

Recommendation

Illinois employers and employees should have their agreements reviewed by an experienced health care attorney to ensure compliance with the new law.

For further information contact us.