There has been a national trend to limit the enforceability of restrictive covenants, namely non-competition and non-solicitation agreements. In a non-competition agreement, an employee agrees not to compete with the employer for a specified period of time after leaving the company. In a non-solicitation agreement, an employee agrees not to solicit a company’s clients or customers for a specified period of time after leaving the company. On July 9, 2021, President Biden issued executive order 14036, entitled “Promoting Competition in the American Economy.” The executive order asserts, among other things, that it is “United States policy that the answer to the rising power of foreign monopolies and cartels is not the tolerance of domestic monopolization, but rather the promotion of competition and innovation by firms small and large, at home and worldwide.”
Following this trend, in 2021, an amendment to the Illinois Freedom to Work Act was passed unanimously, and goes into effect on January 1, 2022. This amendment will apply only to Employment Agreements signed after January 1, 2022.
Among other things, the Illinois Freedom to Work Act introduces a salary threshold under which covenants not to compete and non-solicitation agreements are not enforceable.
Covenants not to compete are not enforceable unless an employee’s actual or expected annual earnings is greater than $75,000. The threshold will gradually increase in the next 15 years. The threshold will raise to $80,000 effective January 1, 2027, $85,000 effective January 1, 2032, and $90,000 effective January 1, 2037.
Non-solicitation agreements are not enforceable unless an employee’s actual or expected annual earnings is greater than $45,000. Similarly to covenants not to compete, the threshold will gradually increase in the next 15 years. The threshold will raise to $47,500 effective January 1, 2027, $50,000 effective January 1, 2032, and $52,500 effective January 1, 2037.
In addition to non-competition and non-solicitation agreements not being enforceable, an employer may be subject to civil penalties if its practices violate the Illinois Freedom to Work Act, up to $5,000 for each violation or $10,000 for each repeat violation within a 5-year period.
The amendment also changes the definition of “adequate consideration,” which Illinois requires in order for a restrictive covenants to be enforceable. Under the amendment, an employee has to have worked for the employer for at least 2 years after an agreement was signed for the restrictive covenants to be enforceable.
Note that under the amendment, the definition of these restrictive covenants does not include covenants not to compete or non-solicitation provisions in relation to the purchase and sale of the assets of a business.
For business owners with employees, you should have an attorney review any employment agreements, or non-competition or non-solicitation agreements you require employees to sign to ensure you are in compliance with the amended Illinois Freedom to Work Act.