ILLINOIS FREEDOM TO WORK ACT – NEW RULES FOR NON-COMPETE AND NON-SOLICITATION AGREEMENTS IN ILLINOIS
The Illinois General Assembly has approved House of Representatives Amendment 1 to Senate Bill (SB) 672, which would significantly reform non-compete and non-solicitation law in Illinois. The bill will now go to Governor JB Pritzker, who is expected to sign the bill into law as the Illinois Freedom To Work Act. The Act would impose limitations on non-compete and non-solicitation agreements, and it provide employers with more clarity about enforceability. The bill has a January 1, 2022, effective date.
The Illinois Freedom To Work Act would:
require an employer to provide an employee at least 14 calendar days to review the agreement and “advise the employee in writing to consult with an attorney” before signing the agreement; ban non-compete agreements for employees making $75,000 per year or less (the salary threshold would increase by $5,000 every five years until reaching $90,000);
ban customer and coworker non-solicitation agreements for employees making $45,000 per year or less (the salary threshold would increase by $2,500 every five years until reaching $52,500);
authorize an employee to recover attorneys’ fees and costs if the employee prevails in a lawsuit brought by the employer seeking to enforce a non-compete or non-solicitation agreement;
authorize the Illinois attorney general to initiate or intervene in litigation and initiate investigations of potential violations; and
prohibit employers from enforcing restrictive covenants with employees who are separated due to COVID-19 or “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 through subsequent employment during the period of enforcement.”
The proposed Freedom To Work Act excludes from the definition of “covenants not to compete” the following:
trade-secret and invention-assignment agreements;
agreements entered into in connection with the acquisition or disposition of an ownership interest in a business;
agreements “requiring advance notice of termination of employment, during which notice period the employee remains employed by the employer and receives compensation” (i.e., “garden-leave clauses”);and agreements that “the employee agrees not to reapply for employment to the same employer after termination” (ie., “no-reapplication clauses”).
The Freedom To Work Act would also codify rules set forth in Illinois case law regarding non-compete and non-solicitation provisions. Specifically, the Act would codify the rule set in Reliable Fire Equipment Co. v. Arredondo (965 N.E.2d 393 (Ill. 2011)) that the “legitimate business interest of the employer” is a totality-of-circumstances test that should evaluate factors such as scope of restrictions and “the employee’s exposure to the employer’s customer relationships.”
The Freedom To Work Act would also codify the rule set forth in Fifield v. Premier Dealer Services (2013 IL App (1st) 120327) by defining “adequate consideration” as either (a) two years of continuous employment after signing the agreement; or (b) alternative consideration, such as “a period of employment plus additional professional or financial benefits or merely professional or financial benefits adequate by themselves.”
In addition, the Act would allow courts to reform non-compete and non-solicitation agreements, rather than hold them unenforceable.
Employers with employees in Illinois should review their agreements with existing employees as well as update their business agreements before the end of the year to insure compliance with the Freedom To Work Act. While existing non-compete and non-solicitation agreements would not be impacted by this legislation, as the bill does not apply retroactively, employers may take this as an opportunity to update existing agreements before the effective date of the Act. Additionally, employers may want to become familiar with the changes that will impact the enforceability of these agreements after January 1, 2022.
Contact Lustig & Wickert at 847.509.9090, by email at Info@Lustiglaw.com or visit us on the web at www.Lustiglaw.com if you have any questions or concerns.Read More