The New Illinois Limits on Non-Competes: Do They Affect You?
Illinois joins a handful of states in curtailing the use of non-competition agreements in some situations. Here’s what healthcare employers (and workers) need to know.
In a previous article, we discussed President Biden’s July 2021 executive order that seeks to limit the use of non-competition agreements. We explained that the order served only as a directive to the federal agency that will implement new policies someday, with no immediate changes to the validity or enforceability of current clauses.
However, state legislators can move more swiftly and decisively than their federal counterparts. For example, Illinois recently amended the Freedom to Work Act, curtailing the use of non-competition and non-solicitation clauses in specific employment situations. The new prohibitions take effect on January 1, 2022.
New Rules for the Average Worker
The scrutiny on non-competes arose from the sentiment that they give employers unfair leverage over workers who earn modest incomes. Workers who lack negotiating power or an attorney’s counsel may feel they have no choice but to accept such clauses. And once they sign, fear of the penalties may prevent them from seeking more suitable job opportunities elsewhere.
Thus, legislators banned non-competes for workers who earn $75,000 or less annually, increasing this pay threshold slightly every five years. In a similar vein, the law prohibits non-solicitation clauses for workers who earn $45,000 or less annually. This threshold also increases incrementally over time.
The law also prohibits the adoption of non-competition covenants for workers furloughed because of COVID-19 or a similar circumstance unless the employer pays the worker’s base salary minus the worker’s other earnings through the entire period specified in the non-compete. In other words, the law effectively requires employers to allow furloughed workers to find alternative employment in their field without penalty. If employers insist on adopting the non-compete, they must reimburse the workers for any wage deficit that arises during the enforcement period.
Increased Notice and Transparency
The Illinois law also mandates that employers who ask employees to sign non-solicitation and non-competition agreements allow employees ample time for review. After January 1, Illinois employers must give workers 14-day notice before requiring them to accept these restrictive covenants. Employers must also advise workers in writing that they should speak with an attorney. By doing so, they underscore the gravity of agreeing to these clauses that substantially affect one’s right to work.
Additional Conditions for Enforceability
The law codifies several additional conditions for the enforceability of non-competition and non-solicitation clauses. For example, restrictions placed on the worker must not exceed the “legitimate business interest” of the employer. Moreover, the worker must receive “adequate consideration” for agreeing to such restrictions.
Finally, employers may face a higher penalty if they lose a lawsuit that relates to the enforcement of a non-compete or non-solicitation. Specifically, workers may seek compensation for legal fees when such a clause is ultimately deemed unenforceable in court or by arbitration. The law also specifically directs the Attorney General to obtain relief on behalf of the people of Illinois if it suspects, based on reasonable cause and after an investigation, that an employer has violated these new prohibitions.
What to Do Now
In general, the new limits redefine the terms of enforceability in a more favorable way for workers. If you operate a healthcare practice or business in Illinois and use employment contracts, the law will likely affect you. Therefore, we recommend you consult your attorney before year-end 2021 to develop agreements that comply with the new requirements.
Note that the new law does not affect contracts executed before January 1, 2022. Nonetheless, if you’re an employee in Illinois currently working under a restrictive covenant such as a non-competition or non-solicitation agreement, you may find it worthwhile to review your contract with an attorney to understand your options.
Jackson LLP helps healthcare practices and professionals with employment issues, including contracts, workforce policies and procedures, and staff training on regulatory compliance. If you’re in Illinois or one of the other states where we practice, reach out to us.
This blog is made for educational purposes and is not intended to be specific legal advice to any particular person. It does not create an attorney-client relationship between our firm and the reader. It should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction.