The Act also builds on existing precedents to instruct the courts on the factors to be considered in assessing whether a duty not to compete or not to advertise is appropriate in light of an employer`s legitimate business interests. When assessing whether there is a “legitimate business interest,” courts must consider “the full range of facts and circumstances of the individual case,” including factors such as: Currently, Illinois law prohibits employers from entering into non-compete obligations with employees earning $13.00 per hour or less. The new law prohibits non-compete obligations for employees earning $75,000 a year or less. The law also prohibits customer and employee prohibition agreements for employees earning $45,000 a year or less. These wage thresholds increase over time (until 2037) to account for inflation. The remuneration threshold for non-solicitation is lower than that for a non-compete obligation. The new law prohibits poaching bans for employees earning less than $45,000 a year. Like the non-compete thresholds, the non-compete threshold increases to $47,500 in January 2027 and to $2,500 every five years thereafter until 2037. While non-compete obligations and solicitation prohibitions are permitted, to be enforceable, they must meet certain requirements: the law comes into force on January 1, 2022 and only applies to agreements entered into after that date. Illinois employees should review all existing employment contracts that contain restrictive agreements now to determine whether the 2021 revisions best protect their interests and ensure compliance with the new law for agreements in 2022 and beyond. Similarly, an employer may not enter into a solicitation agreement with an employee whose annualized rate of pay is less than $45,000 per year. This amount increases to $47,500 on January 1, 2027; $50,000 on January 1, 2032; and $52,500 on January 1, 2037. Prohibitions on non-competition and solicitation that do not meet these requirements are void and unenforceable.
The amendment provides that non-compete obligations and solicitation are unlawful and void unless: (1) the employee receives reasonable consideration (see below); (2) the agreement is ancillary to a valid employment relationship; (3) the agreement is no greater than necessary to protect a legitimate business interest of the employer (see below); (4) the agreement does not impose unreasonable prejudice on the employee; and (5) the alliance is not detrimental to the public. In Illinois, restrictive covenants have long been subject to strict judicial scrutiny because of their impact on the market economy. With the amendment to the Illinois Freedom to Work Act, the stakes are even higher for employers. Businesses should take stock of the new requirements and continue to ensure that their restrictive covenants are appropriately tailored to protect their legitimate business interests without imposing undue hardship on employees. Our team at Katten can help you analyze these issues and make the appropriate adjustments. Employers should also assess their practices, which may affect applicability under the law. For example, employers must ensure that they plan the entire 14-day review period before requiring employees to sign non-compete clauses and solicitation prohibitions. Employers should also consider how to determine whether an employee`s total income meets the legislated monetary coverage thresholds and whether all the consideration promised in support of the agreement in question has been provided to the employee. Finally, the law`s prohibitions mean that strong confidentiality and non-disclosure agreements with enhanced oversight regulations are even more important than before. The law explicitly gives the courts the discretion to reform or remove excessive provisions of a non-compete or non-publicity obligation, rather than removing them as unenforceable, while concluding that comprehensive judicial reform may violate Illinois` public order. In considering whether or not to exercise such discretion, the judge may consider the fairness of the restrictions, as originally drafted, whether the employer has made good faith efforts to protect a legitimate business interest, the extent of the reform required, and whether the parties have approved an amendment to their agreement.
Employers should always include a provision that approves of judicial reform. Although all other parts of this website deal with Illinois and/or federal law, there has been a recent case in Wisconsin that is very interesting on the subject (and it would be good if Illinois followed the example of this case). In Manitowoc v. Lanning (January 2018), the requesting employer had imposed a solicitation ban as part of an employee`s employment contract. The provision prohibited the employee from requesting, inducing or encouraging an employee of the employer to terminate his or her employment relationship or to accept an employment relationship with a competitor, supplier or client of the employer. The employer asserted that the employee had taken actions that violated the non-solicitation clause. The Reliable Fire court noted that “[t]he legitimate business interest is based on all the facts and circumstances of the individual case.” Factors considered relevant to this analysis “include, but are not limited to, near-lasting relationships with clients, the employee`s acquisition of confidential information in the course of his or her employment, and time and place restrictions.” No factor has greater value in the Court`s assessment, and the Court must weigh each factor according to the “specific facts and circumstances of the present case”. First, SB672 – effective January 1, 2022 – (a) significantly increases the annual amount that an employer must pay to an employee in order to impose enforceable non-compete obligations; and (b) includes for the first time income threshold requirements for non-solicitation requirements for employees and businesses.1 In particular, SB672 prospectively invalidates non-compete obligations between employers and employees when employees earn $75,000 per year or less. This threshold increases to $80,000 in 2027, $85,000 in 2032 and $90,000 in 2037. Similarly, SB672 prospectively invalidates non-solicitation agreements for employees earning $45,000 per year or less. This amount increases to $47,500 in 2027, $50,000 in 2032 and $52,500 in 2037. Illinois employers who regularly engage their employees or require them to enter into non-compete or solicitation prohibitions should be aware of these changes and now plan to adjust their use of these agreements to ensure compliance with the changes.
Fifth, SB672 imposes potential liability or risk of litigation or investigation on employers seeking to enforce unenforceable prohibitions of competition or solicitation. Specifically, the law now states that “reasonable consideration” means at least two years of continuous employment after the signing of the contract or any other form of consideration sufficient to support a non-compete obligation […].