Illinois Imposes New Restrictions on Noncompete and Nonsolicitation Agreements
Recently, Governor J.B. Pritzker signed into law an amendment to the Illinois Freedom to Work Act, which substantially reforms Illinois noncompete and nonsolicitation law (available here). The amended law will govern any noncompete or nonsolicitation agreement entered into after January 1, 2022.
The law imposes various limitations on noncompete and nonsolicitation agreements, including:
- Minimum Earning Threshold for Noncompete Agreements: The law prohibits noncompete agreements for an employee unless the employee’s actual or expected annualized rate of earnings exceeds $75,000 per year. This threshold will increase by $5,000 every five years until reaching $90,000.
- Minimum Earning Threshold for Nonsolicitation Agreements: The law prohibits nonsolicitation agreements for an employee unless the employee’s actual or expected annualized rate of earnings exceeds $45,000 per year. This threshold will increase by $2,500 every five years until reaching $52,500.
- Limitations for COVID-19 Separations: The law prohibits noncompete and nonsolicitation agreements where an employer terminates, furloughs, or lays off an employee due to the COVID-19 pandemic or circumstances similar to the COVID-19 pandemic, unless enforcement of the noncompete agreement includes compensation equivalent to the employee’s base salary at the time of termination for the enforcement period minus compensation earned through subsequent employment during the enforcement period.
- Unionized Employees: The law prohibits noncompete agreements for individuals covered by a collective bargaining agreement under the Illinois Public Labor Relations Act or the Illinois Educational Labor Relations Act and construction employees, unless those construction employees primarily engage in management, engineering, architectural, design or sales duties or are shareholders, partners, or owners in any capacity of the employer.
- Notice Requirement for Employees: The law requires that an employee be provided at least fourteen (14) calendar days to review the noncompete or nonsolicitation agreement, and the employer must advise the employee in writing to consult with an attorney before signing the agreement.
- Recovery of Attorneys’ Fees: The law authorizes an employee to recover attorneys’ fees and costs if the employee prevails in a lawsuit brought by the employer seeking to enforce a noncompete or nonsolicitation agreement.
- Enforcement: Finally, the law authorizes the Illinois Attorney General to initiate or intervene in litigation and initiate investigations of potential violations.
In addition to creating the above new requirements, the law also codifies some of the existing elements in Illinois common law regarding a noncompete or nonsolicitation agreement. Specifically, noncompete or nonsolicitation agreements are illegal and void unless:
- The employee receives adequate consideration;
- The covenant is ancillary to a valid employment relationship;
- The covenant is no greater than is required to protect an employer’s legitimate business interest;
- The covenant does not impose undue hardship on the employee; and
- The covenant is not injurious to the public.
Under the law, adequate consideration exists if the employee works for the employer for at least two years after signing the noncompete or nonsolicitation agreement. Alternatively, an employer can provide other adequate consideration to support a noncompete or nonsolicitation agreement, such as a bonus or other financial benefit.
Finally, while the new law maintains the ability of a court to reform an overbroad noncompete agreement, the law provides that extensive judicial reformation of noncompete or nonsolicitation agreements may be against public policy. In determining whether such reformation is appropriate, a court may consider the following factors:
- Fairness of the restraints as originally written;
- Whether the original restriction reflects a good-faith effort to protect the employer’s legitimate business interest;
- The extent of such reformation; and
- Whether the parties included a clause permitting such modification in their agreement.
If you have questions about this or any other workforce issue, please contact your relationship attorney or one of Honigman’s Labor and Employment attorneys.