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From the Press Room

Boodell & Domanskis, LLC - Chicago Business Law

CHANGES TO NON-COMPETES IN ILLINOIS

On August 13, 2021, Illinois Governor J.B. Pritzker signed an amendment to the Illinois Freedom to Work Act. This legislation that started as Senate Bill 672 codifies Illinois common law standards for enforceability for covenants not to compete and covenants not to solicit customer or other employees.  The law takes effect on January 1, 2022 and only applies to restrictive covenants entered into after January 1, 2022.

Covenant not to compete and covenant not to solicit are not being eliminated. However, to have valid covenants not to compete and covenants not to solicit, the employer will need to show:

  • The employee received “adequate consideration” (see below for description).
  • The covenant is ancillary to a valid employment relationship.
  • The covenant is no greater than is required for the protection of a legitimate “business interest” of the employer.
  • The covenant does not impose undue hardship on the employee.
  • The covenant is not injurious to the public.

To have an enforceable covenant not to compete (“non-compete”) and covenant not to solicit (“non-solicit”) an employer needs to have a legitimate business interest. The employer will be required to show a legitimate “good-faith effort” to protect a legitimate business interest of the employer, with reference to a particular employee. This means that “the same identical contract and restraint may be reasonable and valid under one set of circumstances and unreasonable and invalid under another set of circumstances”. Generally, a legitimate business interest would be:

  • The employee’s exposure to the employer’s customer relationships or other employees.
  • The near permanence of customer relationships, i.e., the customers remain customers for a number of years.
  • The employee’s acquisition, use, or knowledge of confidential information through the employee’s employment.
  • Reasonable time restrictions.
  • Reasonable geographic restrictions.
  • Reasonable scope of the activity restrictions.

For a non-compete or non-solicit to be enforceable there also needs to be “adequate consideration” such as:

  • Two years of continuous employment after signing the agreement.
  • Alternative consideration, such as “a period of employment plus additional professional or financial benefits or merely professional or financial benefits adequate by themselves” for instance a signing bonus.

There is a restriction of the level of employee that can have a non-compete and/or non-solicit, meaning non-competes and non-solicits will not be enforceable for “low-wage employees” defined as:

  • Employee earning up to $13.00 per hour or minimum wage (whichever is greater), and/or
  • Employee earning $75,000 per year or less.
  • The salary threshold will increase every five (5) years by $5000.00 until 1/1/2037

There is a restriction of the level of employee that can have a non-solicit:

  • Employee earning at least $45,000 per year (inclusive of all forms of taxable compensation)
  • The salary threshold will increase every five (5) years by $5000.00 until 1/1/2037

For all non-competes and non-solicits:

  • Employers need to provide employees with at least fourteen (14) calendar days to review non-compete and non-solicit and to advise them, in writing, of their right to consult with an attorney prior to signing the agreement.
  • If there is a lawsuit to enforce a non-compete or non-solicit and the employee wins, they will have a statutory right to attorney’s fees and costs.
  • Employers are prohibited from enforcing non-competes and non-solicits against 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.”

To continue to protect an employer against theft or misuse of confidential information and trade secrets, employers should consider utilizing more robust confidentiality agreements, drafting appropriate employer policies, conducting employee training on data privacy and security, and taking additional physical and computer security measures to protect their information.

Please note that this change in non-competes and non-solicits is NOT unique to Illinois. Illinois has simply joined a national trend of states enacting laws designed to limit the use or utility of various restrictive covenants in the employment setting. There is also an outline of the same restriction in the Executive Order on Promoting Competition in the American Economy signed by President Biden in July 2021.

What employers should do before January 1, 2022:

  1. Review the use of non-competes and non-solicits to tailor them to the appropriate level of employee.
  2. Have confidentiality and non-disclosure agreements where appropriate.
  3. Have invention assignment agreements where appropriate.

 

The attorneys at B&D are available to answer your questions about any general issues concerning your business.

If you need assistance navigating these uncertain times, please reach out to us. Our law office has remained open and continues to serve our clients. We are available by telephone, email and Zoom.

 

Should you have any questions or wish to schedule a consultation concerning the topics in this article, please contact Audra Karalius at akaralius@boodlaw.com.

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