Illinois Law Restricts Use of Covenants Not-To-Compete and Non-Solicitation

(October 8, 2021) New statutory restrictions on the use of covenants not-to-compete and non-solicitation provisions in Illinois employment contracts will become effective starting on January 1, 2022.

The law codifies court rulings that restricted the use of non-compete agreements and offers specific criteria for their use. The law also sets limits on the use of non-solicitation provisions in employment contracts.

A non-compete covenant is defined under the new law as preventing an employee from:

• working for another employer for a specific period of time,
• working in a specified geographic area,
• working for another employer that is similar to the employee’s work for the employer included as a party of an employment agreement, or
• any agreement that imposes adverse financial consequences on the former employee if the employee engages in competitive activities after the termination of the employee’s employment.

In order for a non-compete to be valid, the agreement must be ancillary to a valid employment agreement, be only for so long as required to protect a legitimate business interest of the employer, not impose undue hardship on the employee, and not be injurious to the public. These standards are similar to the criteria established in court cases.

The employee must work for the employer for at least two years after signing the agreement or the employer must otherwise provide “consideration adequate to support” the agreement, such as a period of employment plus additional professional or financial benefits or financial benefits adequate by themselves. The agreement must be presented 14 days before the employee begins work and the employer advises the employee in writing to consult with an attorney. Covenants not-to-complete are not valid for employees with an annual wage of $75,000 a year in 2022, increasing to $90,000 by 2037. Currently by comparison, a person making $13 an hour or less cannot be bound by a covenant not-to-compete. Also excluded per the new law are employees covered by certain collective bargaining agreements.

Under the statute, a covenant not-to-compete does not include confidentiality agreements, agreements not to disclose trade secrets or inventions, a covenant entered into by a person purchasing or selling goodwill of a business, or agreements not to seek reemployment.

Employers may restrict former employees from soliciting other employees or the employer’s clients, vendors, or suppliers—but only if the employee’s annual earnings exceed $45,000 in 2022, increasing to $52,500 by 2037.

If an employee is successful in a lawsuit over a covenant not-to-compete or non-solicitation agreement, the employee will be able to recoverall costs and all attorney’s fees in pursuing the case.