Illinois companies may need to re-work existing noncompete and nonsolication agreements they are giving to new hires and cannot require certain existing employees to execute these agreements. The Illinois General Assembly recently approved House of Representatives Amendment 1 to Senate Bill (SB) 672, which will now go to Governor JB Pritzker, who is expected to sign the bill into law.
Employees eligible to execute these agreements:
- To execute noncompete agreements employees must make more than $75,000 per year (the salary threshold would increase by $5,000 every five years until reaching $90,000)
- To execute customer and coworker nonsolicitation agreements employees must make over $45,000 per year (the salary threshold would increase by $2,500 every five years until reaching $52,500)
Requirements when asking employees to sign these agreements:
- An employer must provide an employee at least 14 calendar days to review the agreement and “advise the employee in writing to consult with an attorney” before signing the agreement
- The Bill also requires “adequate consideration” for the agreement as either
- the employee worked for the employer for at least 2 years after the employee signed an agreement containing a covenant not to compete or a covenant not to solicit; or
- the employer otherwise provided consideration adequate to support an agreement to not compete or to not solicit, which consideration can consist of a period of employment plus additional professional or financial benefits or merely professional or financial benefits adequate by themselves.
What happens when an employee challenges an agreement?
- The bill authorizes an employee to recover attorneys’ fees and costs if the employee prevails in a lawsuit brought by the employer seeking to enforce a noncompete or nonsolicitation agreement.
- The Bill authorizes the Illinois attorney general to initiate or intervene in litigation and initiate investigations of potential violations
Unique COVID-19 Considerations:
- The Bill prohibits employers from enforcing restrictive covenants with employees who are separated due to COVID-19 or “circumstances that are similar to the COVID-19 pandemic, unless enforcement of the covenant not to compete includes compensation equivalent to the employee’s base salary at the time of termination for the period of enforcement minus compensation earned through subsequent employment during the period of enforcement.”
Additional Legal Background:
Under the Bill, a “covenant not to compete” is defined as an agreement between an employer and an employee entered into after January 1, 2022 “that restricts the employee from performing:
- any work for another employer for a specified period of time;
- any work in a specified geographical area; or
- work for another employer that is similar to employee’s work for the employer included as a party to the agreement.”
The definition also includes an agreement “that by its terms imposes adverse financial consequences on the former employee if the employee engages in competitive activities after the termination of the employee’s employment with the employer.” Thus, programs such as “forfeiture for competition” agreements would be covered by the Bill.
The Bill also applies to non-solicit agreements. Under the Bill, a “covenant not to solicit” is an agreement between an employer and an employee entered into after January 1, 2022 that “
- restricts the employee from soliciting for employment the employer’s employees or
- restricts the employee from soliciting, for the purpose of selling products or services of any kind to, or from interfering with the employer’s relationships with, the employer’s clients, prospective clients, vendors, prospective vendors, suppliers, prospective suppliers, or other business relationships.”
Existing noncompete and nonsolicitation agreements would not be impacted by this legislation, as the bill does not apply retroactively. These agreements will only be found enforceable if the employer can identify a legitimate business interest that the covenant seeks to protect, the “legitimate business interest of the employer” is a totality-of-circumstances test that should evaluate factors such as scope of restrictions and “the employee’s exposure to the employer’s customer relationships.”
In addition, the bill would allow courts to reform noncompete and nonsolicitation agreements, rather than hold them unenforceable.
Daley Mohan Groble, P.C. encourages employers to contact them with general and specific questions about the new laws and how to comply with them.