In 2016, the Illinois legislature passed the Illinois Freedom to Work Act which banned non-competes, one type of restrictive covenants, for employees earning minimum wage or less. If you recall, this Act was a direct response to the Jimmy John’s non-compete debacle. In that instance, the Illinois Attorney General sued Jimmy Johns and the sandwich-maker relented.
While that Act was a good start, the Illinois General Assembly has recently amended it in several important ways. The only thing left is for Governor Pritzker to sign the bill into law which we expect to happen soon. The Amended Act will apply to new agreements entered into on or after January 1, 2022.
The revised law bars employers from entering into non-compete agreements with any employee who earns less than $75,000 per year. This is a big increase from the current minimum wage threshold. The Amendments also bar employers from entering into another type of restrictive covenants, non-solicit agreements, with any worker who earns less than $45,000 per year. In its first version, the Act did not even address non-solicit agreements. Moreover, the revised law gradually increases the salary thresholds as time goes on.
The Amended Act also codifies the Fifield decision from a few years back which held that anything less than two years of employment after signing a non-compete is insufficient consideration to enforce it. This part of the amended law will apply to all workers, regardless of salary threshold.
Some employers try to get around the Fifield holding by offering separate consideration or benefits in exchange for the non-compete, such as a signing bonus or stock options. The Amended Freedom to Work Act addresses this work-around and says that this separate consideration “can consist of a period of employment plus additional professional or financial benefits or merely professional or financial benefits adequate by themselves.” This is not exactly clear language so we suspect this part of the law will be ripe for litigation.
A couple of other cool provisions in the amended act are:
- a mandatory 14-day review period (stopping employers from strong-arming employees into signing restrictive covenant on their first day of work); and
- a fee shifting which requires employers to pay an employee’s attorneys fees if they sue the employee and lose. The cost of defending a restrictive covenant lawsuit can be staggering for an individual. This provision will force employers to think twice before pursuing weak or baseless claims.
Finally (and I love this part of the amendments) the new law provides that a covenant not to compete is void and illegal for any employee terminated, furloughed or laid because of the COVID-19 pandemic, unless the employer pays the employee’s base salary for the period of the restrictive covenant minus compensation earned through subsequent employment during the period of enforcement.
Bear in mind that none of the above is effective until Governor Pritzker signs the Act. We will update here once he does. And, even with these Amendments, restrictive covenants remain one of the most complicated areas of employment law. If you need assistance reviewing or determining whether one is valid, contact us.
