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Volume XI, Number 267

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Illinois Legislature Passes Comprehensive Non-Compete and Non-Solicitation Bill Anticipated to Be Signed by Governor Pritzker

The Illinois General Assembly recently approved House of Representatives Amendment 1 to Senate Bill (SB) 672, which would significantly reform noncompete and nonsolicitation law in Illinois. The bill will now go to Governor JB Pritzker, who is expected to sign the bill into law.

The bill would impose limitations on noncompete and nonsolicitation agreements, and it aims to provide employers with more clarity about their enforceability. The bill has a January 1, 2022, effective date.

Highlights of SB 672 House Amendment 1: Noncompete and Nonsolicitation Limitations

SB 672 would:

  • require an employer to provide an employee at least 14 calendar days to review the agreement and “advise[] the employee in writing to consult with an attorney” before signing the agreement;

  • ban noncompete agreements for employees making $75,000 per year or less (the salary threshold would increase by $5,000 every five years until reaching $90,000);

  • ban customer and coworker nonsolicitation agreements for employees making $45,000 per year or less (the salary threshold would increase by $2,500 every five years until reaching $52,500);

  • authorize an employee to recover attorneys’ fees and costs if the employee prevails in a lawsuit brought by the employer seeking to enforce a noncompete or nonsolicitation agreement;

  • authorize the Illinois attorney general to initiate or intervene in litigation and initiate investigations of potential violations; and

  • prohibit employers from enforcing restrictive covenants with employees who are separated due to COVID-19 or “circumstances that are similar to the COVID-19 pandemic, unless enforcement of the covenant not to compete includes compensation equivalent to the employee’s base salary at the time of termination for the period of enforcement minus compensation earned through subsequent employment during the period of enforcement.”

The bill would exclude from the definition of “covenants not to compete” the following:

  • nonsolicitation agreements;

  • confidentiality agreements;

  • trade-secret and invention-assignment agreements;

  • agreements entered into in connection with the acquisition or disposition of an ownership interest in a business;

  • agreements “requiring advance notice of termination of employment, during which notice period the employee remains employed by the employer and receives compensation” (i.e., “garden-leave clauses”); and

  • agreements that “the employee agrees not to reapply for employment to the same employer after termination” (i.e., “no-reapplication clauses”).

The bill would also codify rules set forth in Illinois case law regarding noncompete and nonsolication provisions. Specifically, the bill would codify the rule set in Reliable Fire Equipment Co. v. Arredondo (965 N.E.2d 393 (Ill. 2011)) that the “legitimate business interest of the employer” is a totality-of-circumstances test that should evaluate factors such as scope of restrictions and “the employee’s exposure to the employer’s customer relationships.”

The bill would also materially codify the rule set forth in Fifield v. Premier Dealer Services (2013 IL App (1st) 120327) by defining “adequate consideration” as either (a) two years of continuous employment after signing the agreement; or (b) alternative consideration, such as “a period of employment plus additional professional or financial benefits or merely professional or financial benefits adequate by themselves.”

In addition, the bill would allow courts to reform noncompete and nonsolicitation agreements, rather than hold them unenforceable.

Key Takeaways

In light of SB 672, employers with employees in Illinois may want to review their existing agreements with employees. While existing noncompete and nonsolicitation agreements would not be impacted by this legislation, as the bill does not apply retroactively, employers may take this as an opportunity to update existing agreements before the effective date. Additionally, employers may want to become familiar with changes that will impact the enforceability of these agreements after January 1, 2022.

© 2021, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.National Law Review, Volume XI, Number 160
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About this Author

Tobias Schlueter, Discrimination, Retaliation, Litigation, Chicago, Ogletree Deakins Law FIrm
Shareholder

Mr. Schlueter is a strategic advocate and litigator for businesses in employment (including discrimination, retaliation, wage & hour, ADA, FMLA etc.) and unfair competition matters (including restrictive covenants (non-compete, non-solicit and confidentiality), trade secrets, duties of loyalty, tortious interference, and conspiracy, etc.).  Mr. Schlueter has a proven track record in litigating high stakes matters involving temporary restraining orders and other injunctive relief.  He also has significant experience trying FINRA arbitration matters.  He is a member of the steering...

312-558-1225
Madeline Brown St. Louis Lawyer for Ogletree Deakins Nash Smoak & Stewart PC
Associate

Madeline is an associate in the firm’s St. Louis office. Madeline joined the firm in 2021 after receiving her J.D. from Indiana University Maurer School of Law.

While in school, Madeline served as articles editor for the Indiana Law Journal, a research assistant, and a member of the Student Steering Committee for the College of Labor and Employment Lawyers. Additionally, she gained experience as a summer associate at a national labor and employment firm and interned at a statewide hospital system in their corporate legal office.

314-312-4955
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