Written By: Emily A. Shupe
Effective January 1, 2022, amendments to the Illinois Freedom To Work Act significantly changed the landscape for restrictive employment covenants. Under the amended Act, employers may not enter into non-compete agreements with an employee unless the employee’s actual or expected earnings exceed $75,000 per year. Similarly, employers may not enter into non-solicitation agreements with an employee unless the employee’s actual or expected earnings exceed $45,000 per year. Those annual earnings thresholds will increase every five years through 2037.
The legislature has also clarified what constitutes “adequate consideration” for a restrictive employment covenant and codified the existing case law regarding the “legitimate business interest of the employer” for purposes of enforceability. “Adequate consideration” is now defined as either: (1) two years of employment after execution of the restrictive covenant; or (2) some combination of a period of employment and additional professional or financial benefits; or (3) professional or financial benefits adequate by themselves to constitute consideration. Factors for assessing whether a “legitimate business interest” exists include the employee’s exposure to the employer’s customer relationships or other employees, the near-permanence of customer relationships, the employee’s acquisition or knowledge of confidential information through the employment, and the time, place and scope restrictions.
Finally, employers must advise employees, in writing, to consult with an attorney before entering into a restrictive covenant, and they must provide employees at least 14 days to review the restrictive covenant before signing it.
The amendments to the Act also provide for fee-shifting to an employee who prevails on a claim to enforce a restrictive covenant and allows the Illinois Attorney General to take action against employers that violate the Act. Thus, it is critical that employers review their existing agreements to ensure that they comply with these new requirements. Businesses should also train their human resources departments and hiring managers on these new requirements.
To schedule an assessment of your employment agreements and ensure that your business is compliant, please contact a member of our employment law group – Emily A. Shupe, Raymond J. Sanguinetti, or John R. Zemenak.