Illinois Enacts Extensive Changes to Its Noncompete Agreements Law
Author: Robert S. Teachout, XpertHR Legal Editor
August 18, 2021
Changes to the Illinois Freedom to Work Act mean employers will face greater restrictions on their use of noncompete covenants. A recently signed bill sets criteria that must be met for a noncompete agreement to be valid and enforceable, and imposes stricter limits on which employees may be subject to such an agreement. The new provisions will apply to agreements entered into on or after January 1, 2022.
The law redefines "covenant not to compete" to include agreements that impose adverse financial consequences on a former employee if they engage in competitive activities. At the same time, it excludes:
- Nonsolicitation agreements,
- Confidentiality agreements,
- Agreements prohibiting the use or disclosure of trade secrets,
- And others.
Although nonsolicitation agreements are excluded from noncompete agreements, they are covered under other parts of the amended law. The law also for the first time defines "adequate consideration" for purposes of a valid noncompete agreement.
The law prohibits the use of noncompete agreements for employees unless their actual or expected earnings will exceed $75,000 per year. That threshold will increase to:
- $80,000 on January 1, 2027;
- $85,000 on January 1, 2032; and
- $90,000 on January 1, 2037.
Likewise, nonsolicitation agreements are prohibited unless an employee's actual or expected annual earnings will exceed $45,000. That threshold will increase to:
- $47,500 on January 1, 2027;
- $50,000 on January 1, 2032; and
- $52,500 on January 1, 2037.
Of particular note is that the law prohibits an employer from entering into either a noncompete or nonsolicitation agreement with any employee who is terminated, furloughed or laid off as the result of COVID-19 or similar circumstances to the pandemic, unless the employer provides compensation equivalent to the employee's base salary at the time of termination for the period the agreement is being enforced, less any earnings from subsequent employment.
The amendments also make a noncompete agreement void and illegal with respect to employees working in construction and certain public employees, and require employers to give employees advance written notice of the noncompete agreement and at least 14 days to review it.