On January 1, 2022, Illinois’ amended Freedom to Work Act (IFWA) will take effect. Non-compete agreements with employees earning less than $75,000 annually, as well as non -solicitation agreements with employees who earn less than $45,000 annually, are invalid and not enforceable. The Act also imposes strict pre-employment notice requirements and helps to insulate employees from enforcement suits through mandatory fee-shifting if an employer is unsuccessful in litigation.
The amended IFWA will apply prospectively to agreements entered on or after January 1, 2022. Thereafter, enforceability of non-competition and non-solicitation agreements will hinge on employees’ compensation levels. In determining whether an employee will be subject to the new amendment based on earnings, employers must include the following factors: salary; bonuses; commissions; wages and tips. In addition, employers need to include amounts electively deferred by the employee, including 401(k) contributions, 403(b) plans, flexible spending accounts, health savings accounts, and commuter benefit related deductions. Non-compete and non-solicitation agreements are unenforceable if the employee is terminated, furloughed, or laid off as a result of certain circumstances related to COVID-19 or a similar situation.
The amended IFWA also provides that the income threshold for the restriction on non-compete provisions will increase, topping out at $90,000 in 2037. Similarly, the threshold for the restriction on non-solicitation agreements will increase, topping out at $52,500 in 2037.
The amended IFWA also requires at least two years or more of continued employment post-execution of a restrictive covenant in order for the covenant to be enforceable. The law does allow for “additional professional or financial benefits” in lieu of two years of post-execution employment, but does not define what types of benefits qualify. Additionally, employers will be required to provide a copy of the non-competition and/or non-solicitation agreement to the employee 14 days prior to the start of employment and, in writing, will need to advise the employee to consult with an attorney in connection with the agreement prior to signing.
Employers can seek to enforce limits against departed employees, but will face increased financial risk should the enforcement fail. Under the IFWA, employees who prevail on an employer’s claim to enforce will recover all costs and reasonable attorneys’ fees. Additional civil penalties are also provided for employers who engage in a “pattern or practice” of violating the Act.
Non-disclosure and confidentiality provisions and agreements remain unaffected as will contract clauses requiring advanced notice of termination and agreements wherein the employee agrees not to reapply after termination.
Illinois employers should review the IFWA and update their agreements accordingly as they approach 2022. If you have questions about how the IFWA may affect your organization, please contact Johnson & Bell Employment Attorneys, Genevieve M. LeFevour, Christopher J. Carlos and Caroline K. Vickrey.