On May 31, 2021, the Illinois legislature passed SB 672, a bill that amends the Illinois Freedom to Work Act, the state’s non-compete statute. Governor J.B. Pritzker is expected to sign the bill into law. SB 672 would apply to restrictive covenant agreements entered into after January 1, 2022, and introduces a number of new restrictions on not only non-compete covenants, but also employee and customer non-solicitation covenants.
One of the most significant aspects of the bill is that it codifies the rule set forth in Fifield v. Premier Dealer Services, Inc., 2013 IL App (1st) 120327, which held that continued employment is not sufficient consideration for a restrictive covenant unless the employee remains employed for at least two years. Under SB 672, a restrictive covenant is supported by “adequate consideration” if (1) the employee worked for the employer for at least two years after signing a restrictive covenant agreement, or (2) the employer otherwise provided consideration adequate to support the restrictive covenant agreement, “which consideration can consist of a period of employment plus additional professional or financial benefits or merely professional or financial benefits adequate by themselves.” The bill does not define what type or amount of “professional or financial benefits” would be adequate.
SB 672 also creates new salary thresholds limiting who can be bound by a restrictive covenant. Employers would be prohibited from entering into non-compete covenants with employees whose actual or expected compensation is less than $75,000 per year, and also would be prohibited from entering into non-solicitation covenants with employees whose actual or expected compensation is less than $45,000 per year. These amounts will increase periodically by amounts set forth in the bill.
The bill also prohibits employers from entering into restrictive covenants with employees who are terminated, furloughed, or laid off as a result of business circumstances or a governmental order related to COVID-19 or under circumstances similar to the COVID-19 pandemic, unless the employee is paid their base salary for the period of enforcement, minus any compensation earned through subsequent employment during that time. Similarly, a non-compete would be void and illegal with respect to individuals covered by a collective bargaining agreement under the Illinois Public Labor Relations Act or the Illinois Educational Labor Relations Act, as well as certain individuals employed in construction.
In order for a non-compete or non-solicit covenant entered into after January 1, 2022 to be enforceable, the employer would be required to advise the employee in writing to consult with an attorney before entering into the covenant. The employer would also have to provide the employee with a copy of the covenant at least 14 days before beginning employment or provide the employee with at least 14 days to review the covenant.
With the likelihood that SB 672 will be signed into law soon, employers should prepare now by amending their restrictive covenant agreements to conform to these anticipated new requirements, as there are steep consequences for non-compliance. An employee who prevails in a civil action or arbitration filed by an employer would be entitled to recover their costs and attorney’s fees.
Additionally, in civil actions brought by the Attorney General, a court may impose a civil penalty of up to $5,000 for each violation or $10,000 for each repeat violation within a five-year period. Although the bill does provide that courts may, in their discretion, reform a non-compete or non-solicit covenant to make it enforceable, it also cautions that “[e]xtensive judicial reformation” of a non-compete or non-solicit “may be against the public policy of this State and a court may refrain from wholly rewriting contracts.”
Notably, the bill does not apply retroactively to restrictive covenant agreements entered into prior to January 1, 2022, so already-existing agreements would not be subject to the bill’s requirements. Employers, however, may want to consider nullifying already existing agreements that would not be enforceable under SB 672—for example, in relation to employees who do not meet SB 672’s salary thresholds—to have consistency in their workplace. Overall, employers should review their existing agreements in light of the anticipated new law and consider revising them to ensure compliance going forward.