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Illinois Restrictive Covenants

| Nov 15, 2021 | Firm News |

I know some of you own businesses, or work, in Illinois. This past summer, Illinois adopted a law which is significant in both its content, and in how it was adopted.

The issue relates to non-compete/non-solicitation agreements in the workplace. The employer sees a compelling need for them: they are effective tools to protect confidential information, customer relationships and a business’s investment in itself and its employees.

On the other hand, employees view post-employment restrictive covenants differently. To them, the covenants impede their employment mobility, interfere with their ability to improve themselves and just generally, they offend basic principles of individual liberty.

The new Illinois law addressed this issue with a new law. The bill applies to non-competes and non-solicits entered into after January 1, 2022. It is not retroactive, and therefore does not apply to covenants executed before that date.

One of the biggest objections to restrictive covenants was they were overused, often imposed on low to moderate wage earners who needed to find better paying jobs. The Illinois law addressed this concern by banning non-competes for employees earning $75,000 per year or less, and by banning customer and co-worker non-solicits for employees earning $45,000 per year or less. Both of these salary thresholds are roughly indexed for inflation in future years.

Often new employees are handed the restrictive covenants and are told to sign it when they are hired. This practice raised two concerns addressed by the new law. First, process-wise, the bill mandates that individuals be permitted at least fourteen (14) days to review the agreement and decide whether to sign, although an employee is free to sign in less than 14 days should they elect to do so. The bill also requires that individuals be advised in writing to consult with an attorney before signing.

Second, the employee must be given “adequate consideration” for the execution of the covenants. Consideration is deemed adequate when the covenants cannot be enforced until the employee has been employed for at least two years. If a shorter time period is used, then the employee must be given an unspecified amount of professional or financial benefits which the employee would not otherwise have received. Typically, this would be a cash payment.

Finally, as a sign of our times, the bill contains an express exception for employees who lose their jobs because of the COVID-19 pandemic. In that situation, the employer is barred from entering into a restrictive covenant with such persons unless enforcement of the covenant-not-to-compete includes compensation equivalent to the employee’s base salary at the time of termination for the period of enforcement, minus compensation earned though subsequent employment during the period of enforcement.

At the beginning of the article, I noted that the new Illinois law was significant in the way it was enacted. Even in this era of extreme polarization and partisanship, the new law was unanimously passed! Governance based on compromise is still alive.

This article is authored by James L. Jorgensen at Hoeppner Wagner & Evans LLP. Jim practices in the area of business, commercial, and employment law.

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