Illinois Non-Competes: Is Two Years of Employment Required?
Can an employee working for an Illinois company bust their non-compete by resigning after 1 year and 364 days of employment?
The new year brought with it an attempt by the State of Illinois to resolve that question with a statute. Illinois’ statute on restrictive covenants, the Illinois Freedom to Work Act (the “Act”), previously applied only to “low-wage employees,” meaning hourly employees who earned $13 per hour or less. In other words, Illinois left it to the courts to define the requirements for non-low wage employees. As of January 1, 2022, however, the Act has been significantly amended and now applies to all employees, not just “low-wage” employees.
This blog post focuses on one of the numerous significantly amended portions of the Act: The statutory requirement of “adequate consideration” in order to enforce a non-compete or non-solicit clause. Those of you who frequently deal with restrictive covenants know that the question of consideration is one of the first things that comes up in any legal dispute.
As of January 1, 2022, in Illinois, adequate consideration for a non-compete or non-solicit means either of the following:
(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 consideration can consist of a period of employment plus additional professional or financial benefits or merely professional or financial benefits adequate by themselves.
Answering the question that began this blog post: It would seem that the answer is . . . “Maybe.” In other words, if an employer does not provide additional consideration beyond at-will employment, an employee working for an Illinois company can potentially bust their non-compete by resigning after 1 year and 364 days of employment.
By creating two options for adequate consideration, the Act as amended appears to be trying to reconcile the uncertainty long faced by Illinois employers. That uncertainty came from potentially conflicting court decisions. In line with prong (1), numerous Illinois state appellate courts had strictly required at least two years of continued employment to constitute adequate consideration in support of a restrictive covenant — regardless of whether the employee resigned. However, in line with prong (2), other Illinois state appellate courts considered whether additional consideration, above and beyond mere at-will employment, was provided to the employee in consideration — such as money. Federal courts in Illinois, in particular, engaged in an analysis of whether other consideration was provided, and often noted the lack of guidance on this issue from the Illinois Supreme Court.
It seems that the two-pronged approach to adequate consideration is an attempt to unite the prior divergent rulings in courts within Illinois.
Employers should be aware of some of the other new significant statutory prohibitions in the amended Act:
- Protections for Furloughed or Laid Off Employees: Non-competes or non-solicits with employees who are furloughed or laid off as a result of “business circumstances,” or due to COVID-19 government orders or “similar” circumstances, require continued compensation.
- Minimum Salary Requirements: Covenants not to compete are only enforceable against employees whose “actual or expected annualized rate of earnings” is over $75,000 per year; likewise, to enforce a covenant not to solicit against an employee, their rate of earnings must exceed $45,000 per year.
- Non-Competes Illegal in “Construction”: While beyond the scope of this post, the definition of “construction” under the amended Act is worth a read, as the Act prohibits non-competes with employees employed in construction, a term which includes, among other things, the “adding to or subtracting from any building . . . or other structure, project, development, real property or improvement,” but excludes certain management and other functions. Non-competes are also now illegal for employees covered by certain collective bargaining agreements.
- 14 Days to Review: Employers must give employees at least 14 calendar days to review the covenant not to compete.
- Attorneys’ Fees to Prevailing Employees: If an employer sues to enforce a non-compete or non-solicit and the employee prevails, the employee shall recover reasonable attorney’s fees and costs.
- Attorney General May Sue: The Illinois Attorney General may file a civil action against employers engaged in a “pattern and practice” in violation of the Act.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.