The Illinois House of Representatives recently approved legislation that will significantly reform noncompete and nonsolicitation law for Illinois employers. The proposed legislation will provide clarity to existing law and set limitations to both types of employment Agreements. The Bill has Governor Pritzker’s support and will become law once he signs it.
The Noncompete and Nonsolicitation Bill will include these limitations:
- requiring that an employee has at least 14 days to review the Agreement and recommend consulting an attorney prior to signing;
- banning noncompete agreements for those earning $75,000 or less per year, increased by $5,000 every five years;
- banning nonsolicitation agreements for those earning $45,000 or less per year, increasing by $2,500 every five years until reaching $52,500;
- recovery of attorney fees and related costs for the employee if a lawsuit brought about by the employer, for violation of the Agreement, favors the employee;
- prohibiting enforcement of restrictive covenants on those terminated due to COVID-19 or circumstances similar to the pandemic, with certain limitations.
Among other things, the change would exclude certain types of agreements from being considered “covenants not to compete,” including:
- nonsolicitation agreements;
- confidentiality agreements;
- trade-secret and invention assignment agreements;
- agreements that are part of an acquisition or disposition of an ownership interest in a business;
- agreements requiring advance notice of termination in which the employee does not perform work but continues to be compensated and employed (aka garden-leave clauses); and
- agreements stating the employee will not reapply to the same employer (aka no-reapplication clause).
In addition to the limitations and exclusions, the Bill will provide structure for the administration of the law. A totality-of-circumstances test is included that will help determine whether an employer’s “legitimate business interests” are protected by the agreement. This test is designed to measure the scope of restrictions and level of risk involved in providing customer information to an employee. The Bill would also define the term “adequate consideration” as it is used within the agreements to be 1) either two years of continuous employment after signing, or 2) an alternative such as two continuous years of an employment relationship providing a professional or financial benefit to the employee. Courts will also be able to evaluate these agreements to determine if portions are unenforceable and should not be upheld rather than rendering the whole agreement unenforceable.
It is anticipated that Governor Pritzker will sign this legislation to become effective on January 1, 2022, for all contracts entered into after that date. While final approval is pending, employers may wish to review their current agreements and prepare for potential changes.
MRA is not able to provide legal advice in creating noncompete or nonsolicitation agreements, and we advise seeking legal counsel if you plan to make any changes to your existing documents. For other information about this Bill or other employment topics, please contact our 24/7 HR Hotline at 866.HR-Hotline (866.474.6854) or [email protected].
Sources: Ogletree Deakins and The National Law Review