US-Illinois | Governor signs Restrictive Covenant Bill into Law

On August 13, 2021, Illinois Governor signed an amendment to the Illinois Freedom to Work Act (820 ILCS § 90), imposing restrictions on the use of non-competition and non-solicitation (employee and customer) restrictive covenants for Illinois employees.

The law takes effect on January 1, 2022, and only applies to restrictive covenants entered into after January 1, 2022.

 

Key highlights:

1. In determining the legitimate business interest of the employer, the totality of the facts and circumstances of the individual case shall be considered. 

2. Prohibits employer to enter into a covenant not to compete with any employee unless the employee’s actual or expected annualized rate of earnings exceeds $75,000 per year.

Note: This amount shall increase to $80,000 per year beginning on January 1, 2027, $85,000 per year beginning on January 1, 2032, and $90,000 per year beginning on January 1, 2037. A covenant not to compete entered into in violation of this subsection is void and unenforceable.

“Covenant not to compete” also means an agreement between an employer and an employee, entered into after the effective date of this amendatory Act of the 102nd General Assembly, that by its terms imposes adverse financial consequences on the former employee if the employee engages in competitive activities after the termination of the employee’s employment with the employer.

3. A covenant not to compete or a covenant not to solicit is illegal and void 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.

3. Employers must ensure to advise employees to consult with an attorney before entering into a non-compete or non-solicit agreement and must also provide employees at least 14 days to review the agreement and decide whether to sign. Employees have the option of signing the agreement before the 14-day period has ended.

4. Employers are prohibited from entering into restrictive covenants with employees who have lost their jobs due to the COVID-19 pandemic or under 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 though subsequent employment during the period of enforcement.

5. If an employee prevails on a claim filed by an employer seeking to enforce a covenant not to compete or a covenant not to solicit, the employee can recover all costs and reasonable attorney’s fees from the employer regarding such claim. A court or arbitrator may also award appropriate relief.

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