Illinois Limits the Enforceability of Restrictive Covenants

by Nicole Young

On January 1, 2022, an employee-leaning amendment to the Illinois Freedom to Work Act (IFWA) took effect. In response to a growing national concern over lower-paid employees being burdened with post-employment restrictive covenants, the IFWA was amended to determine the enforceability of non-compete and non-solicitation agreements based on employee compensation. Specifically, non-compete agreements with employees earning less than $75,000 annually are now unenforceable, and employers are prohibited from entering into non-solicitation agreements with employees who earn less than $45,000 annually. These income thresholds will increase every five years until 2037.

The amended IFWA offers additional protections to employees outside of the income thresholds. To begin, the statute renders unenforceable non-compete and non-solicitation agreements where the employee is terminated, furloughed, or laid off as a result of certain circumstances related to COVID-19 or a similar situation, unless during the enforcement period the employer provides the employee with compensation equal to the employee’s base salary at the time of termination, minus compensation earned through subsequent employment during the enforcement period. It also requires at least two years or more of continued employment post-execution of a restrictive covenant, or alternatively, additional professional or financial benefits, in order for the covenant to be enforceable. Furthermore, employers must provide a copy of any non-compete and/or non-solicitation agreements to an employee 14 days prior to the start of employment and advise the employee in writing to consult with an attorney prior to signing. Moreover, an employee who prevails on an employer’s claim to enforce a restrictive covenant can recover all incurred costs and reasonable attorneys’ fees. Finally, employers who engage in a “pattern or practice” of violating the IFWA are subject to civil penalties.

These changes are not retroactive, applying only prospectively to non-compete and non-solicitation agreements entered into after the effective date. Still, they will likely make employers reconsider being overly aggressive in the drafting and enforcement of these types of restrictive covenants, offering much-needed relief to lower-paid employees. For additional information on this law or restrictive covenants generally, please contact Caffarelli & Associates Ltd.

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