Illinois employers planning to protect confidential and proprietary trade secret information through the use of non-compete agreements or non-solicitation agreements need to be aware of amendments to the Illinois Freedom to Work Act that will take effect on January 1, 2022. These changes will institute a number of new requirements designed to restrict the use of non-compete and non-solicitation agreements.
Illinois law currently prohibits employers from requiring that workers earning less than $13 per hour sign non-compete agreements. That threshold is about to change. The law will instead prohibit the use of non-competes with workers earning less than $75,000 annually, and the minimum threshold will increase at various pre-determined dates. The minimum amount will rise to $80,00 per year on January 1, 2027, $85,000 per year on January 1, 2032, and $90,000 per year on January 1, 2037.
The law sets similar strictures vis-à-vis non-solicitation agreements. Effective January 1, 2022, the law will prohibit Illinois employers from requiring non-solicitation agreements with employees earning less than $45,000 annually, and will also include similar pre-determined increases for the minimum threshold. That amount will increase to $47,500 on January 1, 2027, to $50,000 on January 1, 2032, and to $52,500 on January 1, 2037.
Restrictions based on employee salaries are not the only new requirements. The law also prohibits the enforcement of non-compete and non-solicitation agreements with any employee terminated, furloughed, or laid off as a result of business circumstances or governmental orders related to the COVID-19 pandemic or under circumstances that are similar to the COVID-19 pandemic. The law, however, permits employers to circumvent this restriction if for the duration of enforcement of the non-compete the employer pays the affected employee their base salary at the time of the termination minus any compensation the employee earns from other sources during that time.
The law also restricts covenants not to compete with respect to individuals covered by a collective bargaining agreement under the Illinois Public Labor Relations Act or the Illinois Educational Labor Relations Act and individuals employed in construction. However, the restriction does not apply to construction employees who primarily perform management, engineering or architectural, design, or sales functions for the employer or who are shareholders, partners, or owners in any capacity of the employer.
In addition to the monetary thresholds, the new law requires that a covenant not to compete or a covenant not to solicit satisfy the following: (1) the employee receives adequate consideration, (2) the covenant is ancillary to a valid employment relationship, (3) the covenant is no greater than is required for the protection of a legitimate business interest of the employer, (4) the covenant does not impose undue hardship on the employee, and (5) the covenant is not injurious to the public. The amendment also seeks to ensure that employees are informed about their obligations by requiring employers to advise employees in writing of the need to consult with an attorney before entering into a non-compete. The law also requires the employer to provide the employee with a copy of the covenant at least 14 days prior to employment or with at least 14 days to review.
Non-compete and non-solicit agreements are common methods of protecting confidential and proprietary trade secret information. Illinois employers, in light of these amendments, should be sure to retain counsel prior to requiring employees to enter into such agreements.