Amended Illinois Freedom to Work Act Brings Sweeping Changes to the Enforceability of Non-Compete and Non-Solicitation Agreements with Illinois Employees
December 30, 2021
By: Brianna Long
Amendments to the Illinois Freedom to Work Act that take effect January 1, 2022 significantly limit employers’ ability to enter into restrictive covenants with employees. Employers with Illinois employees should take note of the sweeping changes or they may find themselves with unenforceable agreements and saddled with penalties.
The amendments apply to restrictive covenant agreements (non-competes and non-solicitation agreements, as defined by the amendments) entered into after January 1, 2022 (Senate Bill No. 672 Section 99). The Illinois Freedom to Work Act previously prohibited covenants not to compete with “low- wage employees,” defined as the greater of minimum wage or $13.00 per hour. The amendments greatly expand the prohibition: employers are prohibited from entering into non-competes with employees earning $75,000 or less. The amendments now cover non-solicitation agreements, prohibiting that type of restrictive covenant with individuals earning $45,000 or less. The threshold amounts are set to increase in 2027 and 2037.
The changes also give employees additional protections during the COVID-19 pandemic or “under circumstances that are similar.” Restrictive covenants after January 1, 2022 with employees who are terminated, furloughed, or laid off for reasons related to the COVID-19 pandemic are also void and unenforceable, unless employees are provided the equivalent of their base salary at the time of termination for the period of enforcement (minus any mitigating compensation through subsequent employment). Employers working with employees covered by a collective bargaining agreement or in the construction industry should take a close look at the amended law, as restrictive covenants in those instances are void under particular circumstances.
The Illinois legislature also codified Illinois appellate case law on restrictive covenants in several respects. See, e.g., Reliable Fire Equip. Co. v. Arredondo, 965 N.E.2d 393, 396 (Ill. 2011). Restrictive covenants are void under the forthcoming law unless “(1) the employee receives adequate consideration, (2) the covenant is ancillary to a valid employment relationship, (3) the covenant is no greater than is required for the protection of a legitimate business interest of the employer, (4) the covenant does not impose undue hardship on the employee, and (5) the covenant is not injurious to the public.” The bill adds Section 7, which provides non-exhaustive factors for courts to consider when determining an employer’s legitimate business interests. In-line with prior case law, Section 7 expressly states that no one factor is weighted more than others, and the individual facts and circumstances of the case should dictate. The provision even recognizes that identical restrictive covenants may be valid under one set of circumstances and invalid as to another.
Under the amendments, a court may exercise its discretion to revise or sever a provision rather than hold it unenforceable. But employers should not count on courts “blue penciling” overbroad agreements. In determining whether to reform an unenforceable restrictive covenant, courts are to consider the fairness of how the agreement was written, whether the original agreement shows a good-faith effort to protect legitimate business interests, the extent of reformation required, and whether the parties authorized reformation in the agreement. The Act will now expressly provide that extensive judicial reformation may violate public policy, and “a court may refrain from wholly rewriting contracts.”
For restrictive covenants entered into after January 1, 2022 to be valid, an employer must also take specific steps prior to execution. New Section 20 requires an employer to advise and employee in writing to consult with an attorney, and the employer must provide a written copy of the covenant at least 14 calendar days before beginning employment or a 14-calendar day review period.
The amended law also comes with new enforcement teeth. In addition to other remedies available pursuant to the agreement or by statute, employees “shall recover” costs and reasonable attorney’s fees from the employer if the employee prevails in litigation or arbitration regarding enforcement of a restrictive covenant covered by the amendments. Newly added Section 30 also provides for Attorney General intervention if an employer is believed to a repeat violator of the Act, authorizing monetary damages, restitution, injunctive relief, and penalties.
Nyemaster Goode’s Labor and Employment Attorneys are available to help employers explore the impact these changes to Illinois law may have on their business.