Currently on Governor J.B. Pritzker’s desk for his signature is Senate Bill 672, which substantially amends the Illinois Freedom to Work Act (IFWA). This bill was passed by the Illinois Senate and House of Representatives on May 31, 2021, and it is anticipated Governor Pritzker will soon sign this bill into law. (It may be law by the time this article is published.)
The bill will apply to all non-compete agreements and non-solicitation agreements entered into on or after January 1, 2022; it is not retroactive. Several amendments and changes to the IFWA are contained in the bill, and this article only addresses a few of them. Employers who have non-compete or non-solicitation agreements with their employees will want to carefully review the entire bill.
Expanding Covenant Restrictions
The IFWA currently prohibits employers from entering into non-compete agreements with employees that earn $13.00 or less per hour. SB 672 amends the IFWA by using an annual salary threshold test instead of the hourly wage test in determining whether a non-compete agreement is enforceable. It provides that a non-compete agreement with an employee earning $75,000 or less per year is void. The salary threshold increases to $80,000 in 2027; $85,000 in 2032; and $90,000 in 2037.
The bill amends the definition of a “covenant not to compete” in the IFWA to mean any agreement between an employer and employee that restricts the employee from performing (i) any work for another employer for a specified time period; (ii) any work in a specified geographical area; or (iii) any work for another employer that is similar to the employee’s work for the employer. The bill expands the definition to include an agreement that imposes adverse financial consequences on a former employee if the former employee engages in competitive activities after termination of their employment.
Certain agreements are excluded from this definition by the bill. One notable exclusion is a covenant or agreement entered into by a person purchasing or selling the goodwill of a business or otherwise acquiring or disposing of an ownership interest.
While the IFWA currently applies to non-compete agreements, the bill expands the Act to also apply to a “covenant not to solicit,” which is defined as an agreement between an employer and employee that (i) restricts the employee from soliciting for employment the employer’s employees, or (ii) restricts the employee, for the purpose of selling products or services of any kind to, or from interfering with the employer’s relationships with, the employer’s clients, prospective clients, vendors, prospective vendors, suppliers, prospective suppliers or other business relationships. The enforceability of non-solicitation agreements is also subject to a salary threshold test, and such agreements are void for employees earning $45,000 or less per year. The salary threshold increases to $47,500 in 2027; $50,000 in 2032; and $52,500 in 2037.
Consideration and Enforcement
SB 672 provides that the employer must advise the employee in writing to consult with an attorney prior to signing a non-compete or non-solicit agreement and must also provide the employee at least 14 calendar days to review such agreements. The bill requires that an employee receives adequate consideration for entering into a non-compete or non-solicit agreement in order for such agreements to be enforceable. Adequate consideration is satisfied if the employee works for the employer for two years after signing the agreement, or if the employer provides adequate consideration such as a period of employment plus additional professional or financial benefits or merely professional or financial benefits adequate by themselves.
After January 1, 2022, an employee who prevails on an employer’s action to enforce a non-compete or non-solicit agreement will be able to collect all costs and reasonable attorney’s fees related to the action from the employer. The bill also provides the Illinois Attorney General with the authority to investigate practices prohibited by the IFWA and to enforce the Act. It includes provisions on judicial reformation of a covenant not to compete and a covenant not to solicit and lists the factors that a court should consider in its discretion as to whether to reform such an agreement or hold the entire agreement unenforceable.
There are other amendments to the IFWA provided by the bill not covered by this article. In summary, prior to January 1, 2022, an employer who has non-compete agreements and/or non-solicit agreements with its employees will want to review the bill and its amendments to the IFWA to determine what actions and modifications the employer should make to its employment practices and to its non-compete and non-solicit agreements. PM
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