The Illinois Freedom to Work Act

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Michael J. Fortunato

September 17, 2021

Highlights
The Act is not retroactive, but, beginning on January 1, 2022, the Act:

  • bans noncompete agreements for employees making $75,000 per year or less (the salary threshold will increase by $5,000 every five years until reaching $90,000); and
  • bans customer and employee nonsolicitation agreements for employees making $45,000 per year or less (the salary threshold will increase by $2,500 every five years until reaching $52,500).

For both a covenant not to compete and a covenant not to solicit employees or customers:

  • an employer must provide to 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;
  • an employee may recover attorney’s fees and costs if the employee prevails in a lawsuit brought by the employer seeking to enforce a noncompete or nonsolicitation agreement;
  • the Illinois attorney general may initiate or intervene in litigation and initiate investigations of potential violations; and
  • employers are prohibited 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.”

The Act codifies the rules set forth in Illinois case law regarding noncompete and nonsolicitation provisions.  Specifically, the Act codifies the rule set forth in Reliable Fire Equipment Co. v. Arredondo, 965 N.E.2d 393 (Ill. 2011), that 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.”

To enforce a noncompete or nonsolicitation agreement, the employer will have to show that:

  1. the employee received adequate consideration;
  2. the agreement is ancillary to a valid employment relationship;
  3. the agreement is no greater than required to protect the employer’s legitimate business interests;
  4. the agreement does not impose undue hardship on the employee; and
  5. the agreement is not injurious to the public.

Adequate Consideration
The Act adopts the rule set forth in Fifield v. Premier Dealer Servs., 993 N.E.2d 938 (Ill. App. Ct. 1st Dist. 2013)The Act defines “adequate consideration” as either (a) two years of continuous employment after signing the agreement; or (b) alternative consideration, such as “a period of employment plus additional professional or financial benefits or merely professional or financial benefits adequate by themselves.”

The Act is designed to protect low wage earners.  Therefore, appropriate compensation alone after 2022 will be adequate consideration.  To enforce a restrictive covenant entered into before January 1, 2022, an employer will likely need to prove continued employment for some appreciable period of time coupled with non-illusory benefits and a legitimate business interest that the employer has been seeking to protect.

 
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