On 31 May 2021, the Illinois legislature passed Senate Bill (SB) 672, which would significantly alter the Illinois Freedom to Work Act by limiting the scope and viability of non-competition and non-solicitation agreements in Illinois. The bill, which is expected to be signed into law by Governor JB Pritzker, would take effect on 1 January 2022.
With some exceptions, SB 672 would require that the non-competition/non-solicitation agreement be supported by “adequate consideration,” which means either (1) the employee worked for the employer for at least 2 years after signing the agreement, or (2) the employer otherwise provided consideration adequate to support an agreement not to compete or solicit (e.g., a period of employment plus additional professional or financial benefits, or merely professional or financial benefits adequate by themselves).
Notably, SB 672 would prohibit non-compete agreements unless the employee’s actual or expected annualized rate of earnings exceeds USD 75,000 per year (which salary threshold would increase by USD 5,000 every 5 years until reaching USD 90,000 beginning on 1 January 2037). It additionally prohibits customer and coworker non-solicitation agreements unless the employee’s actual or expected annualized rate of earnings exceeds USD 45,000 per year (the salary threshold would increase by USD 2,500 every 5 years until reaching USD 52,500 per year beginning on 1 January 2037).
As to enforceability, SB 672 would provide that a non-competition or non-solicitation covenant is unlawful unless (1) the employee receives “adequate consideration”; (2) the covenant is ancillary to a valid employment relationship; (3) the covenant is no greater than is required for the protection of a legitimate business interest of the employer; (4) the covenant does not impose undue hardship on the employee; and (5) the covenant is not injurious to the public.
SB 672 would also impose certain procedural requirements that must be followed for a restrictive covenant to be enforceable. Initially, the employer would be required to provide an employee at least 14 calendar days to review the agreement and “advise the employee in writing to consult with an attorney” before signing the agreement. Moreover, the agreement must allow an employee to recover from the employer lawyers' fees and costs if the employee succeeds in a lawsuit brought by the employer seeking to enforce the covenant. SB 672 would also prohibit employers from entering into a covenant not to compete or a covenant not to solicit with employees who are separated or furloughed due to COVID-19 or “circumstances that are similar to the COVID-19 pandemic, 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 through subsequent employment during the period of enforcement.”
Finally, SB 672 would authorize the Illinois Attorney General to initiate or intervene in litigation if it has reasonable cause to believe that any person or entity is engaged in a pattern and practice prohibited by the Act and to initiate investigations of potential violations. It also would allow courts to reform or sever provisions of a covenant not to non-compete or a covenant not to solicit rather than hold them unenforceable in some circumstances.