Hepler Broom, LLC

Restrictive Covenants: Illinois’ Amended Freedom to Work Act has Serious Impact on Responsibilities of Both Employers and Employees

February 22, 2022

by Katelyn Hall

All employers in the State of Illinois should be aware of the updated Illinois Freedom to Work Act (“Act”) that took effect January 1, 2022. The amendments to the Act (which were made during the summer 2021 legislative session) have major consequences for employers who require employees to sign restrictive covenants. (The amendments can be read here.)

The Act’s Amendments

When the Act was originally signed into law in 2016 by former Governor Rauner, the Act prohibited employers from requiring “low-wage employees” to sign restrictive covenants. (In 2016, a “low-wage employee” was defined as any employee earning less than: (1) the applicable federal, state, or local hourly minimum wage, or (2) $13.00 per hour, whichever was greater.) Additionally, the Act declared all such agreements to be illegal and void. In contrast, the January 2022 updates both expand protections for employees and entirely eradicate the term “low-wage employee” from the Act.

Expanded Employee Protection

The Act expands employee protection from restrictive covenants in two key ways. First, covenants not to compete are limited to only employees who earn or are expected to earn at least $75,000 a year. Similarly, covenants not to solicit are only valid if the employee makes or is expected to make at least $45,000 a year.[1] It is important to note that should the Act’s updates still be in effect, both of these amounts begin to rise as of 2027. Most significantly, Section 10 of the Act provides a special exemption from enforcing a restrictive covenant against furloughed employees or employees laid off due to COVID or COVID-like circumstances unless the covenant provides for a payment of the employee’s base salary for a specific period of time.

Requirements for Enforcement

This updated Act lists several requirements for a restrictive covenant to be enforced: (1) the employee must be given 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.

The Act lays out several factors to be considered when courts must determine whether something is a “legitimate business interest” in a dispute over restrictive covenants. The factors include, but are not limited to: (1) the employee’s exposure to the employer’s customer relationships or other employees; (2) the employee’s acquisition, use, or knowledge of confidential information through the employee’s employment; (3) time restrictions; (4) place restrictions; and (5) scope of the activity restrictions. All factors have the same weight, and each case must be determined on its individual facts in evaluating whether a covenant is actually part of a legitimate business interest.

Employee Notification

An employer must inform all employees subject to a restrictive covenant what the restrictions are in the terms of the covenant. There are two requirements for informing employees of the terms. First, the employer must advise the employee in writing to consult with an attorney before entering into the covenant. Second, the employer must provide the employee with a copy of the covenant at least 14 calendar days before the employee begins work. If it’s not possible to provide a copy 14 days before the employee starts, the employer must give the employee at least 14 days to review the covenant. Failure to do so results in the contract being considered void and illegal.

Remedies

The Act also provides remedies should issues arise. If an employee is successful in his or her defense against an employer who files a civil action or arbitration to enforce a restrictive covenant, the employee shall recover all costs from the employer. The court or an arbitrator may also award appropriate relief. In addition, if the Attorney General investigates an action under this Act, one of the potential penalties for the responsible party may be money damages. The Attorney General may also request that the court impose a civil penalty of no more than $5,000 on the party responsible for the violation. For each violation within a five-year period, the penalty per violation will be $10,000.

The Takeaway

As of January 1, 2022, all Illinois employers are on notice of updates to the Freedom to Work Act. Among the multiple noteworthy changes to this Act are special protections for employees terminated as a result of the current pandemic. Failure to comply puts businesses and business owners in a vulnerable position that could easily have been avoided.

[1]  Non-compete covenants are void and illegal for employees covered by collective bargaining under either the Illinois Public Labor Relations Act or the Illinois Educational Labor Relations Act as well as those employed in construction.

COVID-19 Updates