Employment Law Trending Now – Amendments to the Illinois Freedom to Work Act and Non-Compete and Non-Solicit Agreements
Last year, Governor J.B. Pritzker signed into law a bill amending the Illinois Freedom to Work Act, 820 ILCS § 90 (the “Act”). The Act, which was originally passed in 2016, banned the use of non-compete agreements for low-wage workers.
The amendments to the Act, which went into effect on January 1, 2022, place additional restrictions on an employer’s ability to enter into non-competition and non-solicitation covenants with its employees, as well as place certain affirmative obligations on employers who decide to use such restrictive covenants moving forward.
Below is a brief summary of changes made to the Act and how they might impact Illinois employers.
The Act creates a salary floor for restrictive covenants containing non-compete and non-solicitation clauses. In particular, the Act prohibits employers from entering into non-competes with employees who earn less than $75,000, as well as from enforcing non-solicitation agreements with employees earning less than $45,000 per year. The salary threshold is slated to increase by $5,000 in each of 2027, 2032 and 2037.
Codification of the Fifield Doctrine
The Act codifies the Illinois Appellate Court’s decision in Fifield v. Premier Dealer Serv., Inc., 2013 IL App. (1st) 120327, which required at least two years of continued employment after an agreement is signed, absent any other additional consideration, in exchange for an employee agreeing to a restrictive covenant.
The Act provides that adequate consideration can mean at least two years of continued employment after an agreement is signed or another form of consideration sufficient to support a non-compete. Notably, the Act does not define the “other” option but suggests that “merely professional or financial benefits” may be “adequate by themselves.”
Employees Terminated, Furloughed or Laid Off Due to the Pandemic
The Act prohibits employers from enforcing restrictive covenants with employees the employer terminates, furloughs or lays off due to the COVID-19 Pandemic (the “Pandemic”) or “similar circumstances,” unless enforcement of the restrictive covenant 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 through the period of enforcement.
As “similar circumstances” are not defined in the Act, employers should consider having employees hired after a layoff on or after January 1, 2022 sign new restrictive covenants, so as to avoid a finding that a prior restrictive covenant is unenforceable.
Notice Requirements to Employees
The Act requires employers to provide employees at least 14-days’ written notice to review an agreement, as well as with written notice that they are entitled to consult with an attorney before entering into a restrictive covenant.
Reformation of Restrictive Covenants
The Act notably discourages courts from “extensive reformation” of restrictive covenants and, instead, provides a list of specific factors a court should consider when assessing the enforceability of a restrictive covenant, including but not limited to, the fairness of the restraints as originally written, as well as whether the parties had included a clause authorizing such modifications in their agreement.
And, while the amendments to the Act will not be applied retroactively, employers seeking to maximize the enforceability of any existing restrictive covenants should note that Illinois courts have not yet interpreted existing restrictive covenants within the context of the amended Act.
Enforcement and Fee-Shifting Provision
The Act allows for fee-shifting in favor of employees if they prevail in arbitration or litigation brought by an employer to enforce a restrictive covenant. Additionally, the Illinois Attorney General will be empowered to bring a lawsuit against an employer whom it believes is engaged in a “pattern and practice” prohibited by the Act.
Illinois employers should review and revise their restrictive covenant agreements and existing hiring policies to ensure enforceability of their restrictive covenants, as well as compliance with Illinois law.
If you have any questions about this alert, or if you would like assistance in updating your employee agreements to comply with the Act and its amendments, please contact the authors listed below or the Aronberg Goldgehn attorney with whom you normally consult.
Maryam H. Arfeen
The above material is intended for general information and promotional purposes and should not be relied on or construed as professional advice. Under the Illinois Rules of Professional Conduct, the above information may be considered advertising material. The transmission of this information is not intended to create, and receipt of it does not create, a lawyer-client relationship.