Illinois Updates Noncompete Law

Illinois this summer made major changes updates to its noncompete law.

Amendments to the Illinois Freedom to Work Act go into effect Jan. 1, 2022, and apply to employment agreements signed after that date.

At a high level, the state opted to increase the salary thresholds under which employers can create noncompete and non-solicit contracts with workers.

Illinois Noncompete Law

The amended law bars noncompete agreements unless an employee’s “actual or expected annualized rate of earnings” goes above $75,000 per year.

That amount increases to $80,000 per year on Jan. 1, 2027, $85,000 a year starting Jan. 1, 2032, and $90,000 per year beginning Jan. 1, 2037.

Meanwhile, non-solicit agreements will be illegal unless an employee’s actual or expected annualized rate of earnings exceeds $45,000 per year. Like the noncompete provision of the law, it will also increase:

• $47,500 per year on Jan. 1, 2027
• $50,000 per year on Jan. 1, 2032
• $52,500 per year on Jan. 1, 2037

Other Amendments to Illinois’ Noncompete Law

Also of note for employers, the amended law requires employers to provide workers with 14 calendar days to review these agreements before signing in order to be valid.

The law also now further defines “adequate consideration” as either:

• 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
• 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

Lastly, the amended law also restricts noncompete/non-solicit agreements as part of a severance package in which an employee is fired or laid off because of COVID-19 (or similar reasons), either business related or through government orders. In these instances, those agreements are invalid unless the company pays the worker normally during that period, minus any other earnings through a new job.

Conclusion

Employers that operate in Illinois and have policies regarding noncompete or non-solicit agreements should review the new salary thresholds under the Illinois Freedom to Work Act.

While the effective date isn’t until Jan. 1, 2022, employers should begin looking at policy revisions to align with Illinois’ amended law.

This Employment Law News blog is intended for market awareness only, it is not to be used for legal advice or counsel.