COMP NEWS – Starting January 1, 2022, employers in Illinois who seek to improve restrictive covenants and non-competes on their employees will face several new challenges.

Previously, the Illinois Freedom to Work Act barred employers from requiring “low wage” workers earning $13.00 per hour or less to sign a covenant not to compete or covenant not to solicit agreement.

The legislature passed an amendment to the Act in June 2021 (expected to be signed by Illinois Gov. J.B. Pritzker) that greatly expands the scope of its original, laudatory intent to protect vulnerable workers without bargaining power.

Under the amendment, an employer cannot enter into a covenant not to compete unless the employee earns more than $75,000 per year. For a non-solicitation agreement, which covers actual or prospective customers and other business relationships (like vendors), the threshold is over $45,000 per year. These amounts will increase by $5,000 and $2,500, respectively, every 5 years over the next 15 years. “Earnings” include compensation reported on the employee’s IRS Form W-2 (e.g., wages, commissions, bonuses) plus elective deferrals not included (e.g., contributions to 401(k) plan, flexible spending account, commuter benefits).

The enforceability of covenants is traditionally a legally grey area, with many other state laws on the subject being unclear or untested in court. With this legislation, that ambiguity is becoming more defined in Illinois. Employers who lose an enforcement action in court or arbitration risk being responsible for paying the employee’s attorney’s fees.

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