August 25, 2021
Effective January 1, 2022, employers will no longer be able to enter into covenants not to compete (non-compete agreements) and covenants not to solicit (non-solicitation agreements) with employees whose earnings are below a certain amount.
On August 13, Governor JB Pritzker signed into law Amendment 1 to Senate Bill 672. The Illinois Freedom to Work Act now makes it illegal for employers to enter into non-compete agreements with any employee unless the employee’s earnings exceed $75,000 per year. Likewise, it is illegal for employers to enter into non-solicitation agreements with any employee unless the employee’s earnings exceed $45,000 per year.
In addition, no employer shall enter into non-compete or non-solicitation agreements with any employee who is terminated, furloughed, or laid off as a result of varying COVID-19 circumstances. Similarly, a non-compete agreement is void and illegal with respect to individuals covered by a collective bargaining agreement under the Illinois Public Labor Relations Act or the Illinois Educational Labor Relations Act. Individuals employed in construction are also included in this list.
The legislation also provides the criteria employers must meet when entering into these agreements. According to the bill text, non-compete agreement or a non-solicitation agreement is illegal and void unless:
(1) The employee receives adequate consideration*
(2) The agreement is supplementary to a valid employment relationship
(3) The agreement is no more than what is required for the protection of a legitimate business interest of the employer
(4) The agreement does not impose undue hardship on the employee
(5) The agreement is not harmful to the public
To ensure employees are informed about their obligations, an agreement not to compete or an agreement not to solicit is illegal and void unless:
(1) The employer advises the employee in writing to consult with an attorney before entering into the agreement.
(2) The employer provides the employee with a copy of the agreement at least 14 calendar days before the start of employment or 14 calendar days to review the agreement.
While the bill does not apply retroactively, it will create a substantial change to the future employment agreements and is something employers should keep in mind as the January 1, 2022, effective date looms.
*As defined in the bill, “Adequate Consideration” means, “(1) the employee worked for the employer for at least two 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 consideration can consist of a period of employment plus additional professional or financial benefits or merely professional or financial benefits adequate by themselves.”