Enforcement of Restrictive Covenants Narrows Further in Illinois

Since 2017, Illinois has prohibited employers from imposing non-compete restrictions on “low-wage” employees who earn less than $13.00 per hour. Governor Pritzker is now expected to sign a bill (SB 672), which will further limit the ability of employers to enforce restrictive covenants.

SB 672 will amend the Freedom to Work Act to unambiguously apply to both covenants not to compete and covenants not to solicit.  Additionally, under SB 672, even otherwise valid restrictive covenants will not be enforced against employees who earn less than $75,000 per year and covenants not to solicit will not be enforced against employees who earn less than $45,000 per year.

For covenants not to compete, this salary threshold will increase every five years by $5,000 until January 1, 2037. Similarly, for covenants not to solicit, the salary threshold amounts will increase every five years by $2,500 until January 1, 2037.

The bill will also require employers to advise employees, in writing, to consult with an attorney before signing a non-compete or non-solicit agreement.  Employees will also be entitled to a minimum of 14 days to review such agreements before signing.

SB 672 also settles an eight year legal debate in Illinois by codifying the bright-line rule stated in Eric Fifield and Enterprise Financial Group, Inc. v. Premier Dealer Services, Inc. Per SB 672, “adequate consideration” sufficient to support a non-compete or non-solicit restriction requires: (1) the employee worked for the employer for at least 2 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 to not solicit, which can consist of a period of employment plus additional professional or financial benefits or merely professional or financial benefits adequate by themselves.

SB 672 will also nullify, with a few narrow exceptions, restrictive covenants executed by employees furloughed or terminated due to business circumstances or governmental orders related to COVID-19.  It will also nullify non-compete agreements executed by employees covered by certain collective bargaining agreements.

Employees who prevail on claims filed by employers to enforce restrictive covenants will be entitled to recover their costs and reasonable attorney’s fees from their employers.  SB 672 will take effect January 1, 2022, and will apply to any agreements entered on or after that date.

SB 672 should not alarm CCM clients because we have been counseling caution with respect to restrictive covenants for years.  CCM has one of Illinois’ foremost experts on restrictive covenants, Kenneth J. Vanko, so give CCM a call before your business implements a restrictive covenant that may or may not be enforceable.