Change in Illinois Restrictive Covenants Law

On January 1, 2022, an amendment to the Illinois Freedom to Work Act will go into effect. The amendment implements several protections for middle-class employees against restrictive covenants such as non-competition and non-solicitation agreements.

In sum, the amendment voids restrictive covenants for certain employees below an earnings threshold, codifies existing Illinois common law, and allows employees to recover attorney’s fees if the employer sues to enforce an agreement and the employee prevails.

More specifically, the amendment voids covenants not to compete for employees with actual or expected earnings lower than $75,000 per year and voids covenants not to solicit for employees with actual or expected earnings lower than $45,000 per year. Furthermore, any restrictive covenant is automatically void unless the employer has afforded the employee 14 days to review the agreement and has advised the employee in writing to consult an attorney prior to entering the agreement.

In addition to these new bright-line statutory rules, the amendment also codifies existing Illinois common law governing restrictive covenants. Notably, the amendment requires restrictive covenants be supported by “adequate consideration” such as two years of continued employment or a period of employment along with additional professional or financial benefits. The restrictive covenant must also be part of a valid employment relationship and cannot impose undue hardship on an employee or the public.

In general, employers should be cognizant that restrictive covenants cannot be any more restrictive than necessary to serve a legitimate business interest. The amendment mentions multiple factors relevant to this determination including: (1) the employee’s exposure to the employer’s customer relationships or other employees; (2) the near permanence of customer relationships; (3) an employee’s use or knowledge of confidential information; and (4) the time, place, and scope of the restrictions.

Though the amendment does not retroactively apply to valid restrictive covenants prior to January 1, 2022, ultimately, employers should understand the various limitations imposed by the amendment and adjust their employment contracts accordingly. The new law is a strong indicator of current Illinois public policy and employers will soon face new challenges when drafting and enforcing restrictive covenants. 

On Key

Related Posts

Illinois Paid Leave Law

Bill 208 has been passed by the Illinois legislature guaranteeing five (5) days or forty (40) hours of paid leave for all employees in the