Illinois governor signs law that applies limits to non-competition and non-solicitation agreements

As we previously reported, the Illinois legislature unanimously passed Senate Bill 672, which significantly reforms the Illinois landscape governing non-competition and non-solicitation agreements. On August 13, 2021, Governor Pritzker signed this bill unchanged into law, set to go into effect on January 1, 2022.  

As a reminder, here are some key takeaways: 

• Employers cannot enter into enforceable non-compete agreements with Illinois employees who have expected earnings less than $75,000. 
• Employers cannot enter into enforceable customer/employee non-solicitation agreements with Illinois employees who have expected earnings of less than $45,000. 
•  A covenant not to compete is void and illegal if entered into with an individual covered by a collective bargaining agreement under the Illinois Public Labor Relations Act or the Illinois Educational Labor Relations Act, as well as individuals employed in construction.
• An employer is not able to enter into a non-competition/non-solicit agreement with an Illinois employee who is terminated, furloughed, or laid off as a result of business circumstances or government orders related to the COVID-19 pandemic, unless certain conditions are satisfied.
• The non-competition/non-solicitation agreement has to satisfy an employer’s legitimate business interest.
  •  This requirement is analyzed by looking at the “totality of the circumstances.” Factors such as time, place, and scope of activities, as well as the employee’s exposure to the employer’s near-permanent customer relationships, are considered.

• The non-competition/non-solicitation agreement must be supported by independent, adequate consideration. 
  
  • “Adequate consideration” means (1) the employee worked for the employer for at least two years after the employee signed an agreement containing a covenant not to compete or a covenant not to solicit or (2) the employer otherwise provided consideration adequate to support an agreement to not compete or solicit, such as a period of employment plus additional professional or financial benefits, or merely professional or financial benefits by themselves, e.g. a signing bonus.
• Employers are required to provide Illinois employees 14 days to review a non-competition/non-solicitation agreement and advise them in writing at the same time to consult an attorney before signing it. 
• The non-competition/non-solicitation agreement is subject to judicial reformation.
  • The law codifies the court’s practice of “blue penciling,” or reforming provisions of a restrictive covenant, rather than holding a covenant unenforceable. But, the law continues to emphasize the public policy against courts wholly rewriting contracts.

The requirements under this law are not retroactive. Employers should consider whether to implement any non-competition/non-solicitation agreement for Illinois employees in advance of January 1, 2022, and also review any current form agreements to conform to Illinois law when the law takes effect. 

Zoe Spector and Susan Lorenc are attorneys in Thompson Coburn’s Labor & Employment group.