On January 1, 2022, Senate Bill 0672 went into effect, drastically amending the Illinois Freedom to Work Act. The Bill codified restrictive covenants that, prior to the Bill, had solely been addressed by judicial decisions. Whether or not a restrictive covenant is enforceable is now largely determined by earning thresholds and valid employee relationships. This new law has significant implications for employers, employees, and lawyers alike. Whether this law applies to independent contractors is a bit unsettled.
What is the Illinois Freedom to Work Act?
The Freedom to Work Act concerns two types of restrictive covenants: non-competes and non-solicits.
Non-competes are defined as agreements that restrict an employee from:
- Performing work for other employers within a specific amount of time
- Performing work in a specific geographical area
- Performing work is similar to the existing employer’s business.
Non-solitics restrict an employee from:
- Soliciting employment from their employer’s clients
- Soliciting clients of the employer to purchase the employee’s own products and services
- Compromising the employer’s relationships with a client or potential client.
Employees who breach these restrictive covenants may face civil suits and injunctions preventing them from working with a new business or with certain clients and employees.
The amended Illinois Freedom to Work Act is not retroactive, meaning only employee agreements drafted after January 1, 2022 are affected by the amendment.
What is required to enforce a non-compete or non-solicit?
In order for a restrictive covenant to be applicable and enforceable under the amended Illinois Freedom to Work Act:
- The restrictive covenant is ancillary to a valid employment relationship
- The covenant is no greater than is required for the protection of a legitimate business interest of the employer
- The covenant does not impose an undue hardship on the employee
- The covenant is not injurious to the public
Regulations under the Illinois Freedom to Work:
Minimum Salary Thresholds:
An employee that earns an annual wage of less than $75,000 cannot be bound by a non-compete. An employee that earns an annual wage of less than $45,000 cannot be bound by a non-solicit.
These salary thresholds of enforceability will increase for non-competes by $5,000 and non-solicits by $2,500 every five years until January 1, 2037, when the amounts will equal $90,000 and $52,000, respectively.
In order for a restrictive covenant to be enforceable, it must be supported by “adequate consideration,” meaning the employee has:
- Worked for the employer for at least two years after the employee signed a non-compete or non-solicit agreement.
- Otherwise provided consideration adequate to support an agreement to not compete or solicit that constitutes independent consideration for entering an agreement, such as professional or financial benefits.
Mandatory Review period:
Under the amended Freedom to Work Act, employers must give employees a 14 day period to review the restrictive covenant, make proposed revisions, and decide whether to sign the agreement. Employees are not obligated to take all 14 days to make their decision, but employers are required to provide it.
Exceptions to the Amendment:
Restrictive covenants are unenforceable with respect to individuals:
- Covered by collective bargaining agreements under the Illinois Public Labor Relations Act or the Illinois Educational Labor Relations Act
- Individual employed in construction
With all of the aforementioned provisions, the Act has largely codified existing common law regarding restrictive covenants. In regards to fee-shifting provisions, it diverges from common law in that employees who face enforcement litigation and prevail are entitled to recover attorney’s fees from employers. This is intended to curb incentive for employers to enforce invalid restrictive covenants.