December 5, 2021

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7 Crucial Takeaways for Companies as Illinois Passes Groundbreaking Restrictive Covenant Arrangement Legislation | Fisher Phillips

Illinois Governor J.B. Pritzker lately signed a new law into impact that amends the Illinois Liberty to Get the job done Act (IFWA) and results in greater hurdles for businesses when it will come to the enforceability of restrictive covenants these types of as non-levels of competition and non-solicitation agreements. The new law, signed on August 13 and having effect on January 1, 2022, will invariably influence any Illinois employer that possibly deploys these types of agreements now or contemplates utilizing this sort of agreements in the long run. Due to the fact the new regulation only applies to agreements that are entered into on soon after January 1, 2022, now is the time for companies to evaluate and revise their restrictive covenant agreements. On top of that, it is critical to start off scheduling for the transition to the new authorized benchmarks in 2022 and beyond. What are the 7 vital takeaways companies have to have to know?

7 Essential Takeaways from Illinois’s New Regulation

Ahead of the enactment of the new law, the validity of restrictive covenant agreements was mainly ruled by Illinois frequent law. The amended IFWA now incorporates a number of provisions that considerably change the authorized specifications relating to the enforceability of staff non-competition and non-solicitation covenants in the Point out of Illinois. Some of the new law’s vital provisions contain: 

  1. The legislation codifies selected judicial rulings relating to the adequacy of thing to consider in assistance of enforcement of non-level of competition and non-solicitation covenants. Under the new legislation, a restrictive covenant is supported by “adequate consideration” if (1) the staff has worked for the employer for at the very least two a long time right after signing a restrictive covenant arrangement, or (2) the employer has offered the staff with “professional or money benefits” that may possibly represent unbiased thought for entering into a restrictive covenant agreement. The law does not determine precisely what total of “professional or financial” positive aspects shall represent sufficient consideration.
  2. A covenant not to compete is not legitimate or enforceable except if the employee’s precise or anticipated annualized rate of earnings exceeds $75,000 for each 12 months, topic to supplemental will increase in subsequent years.
  3. A covenant not to solicit is not valid or enforceable unless of course the employee’s precise or predicted annualized price of earnings exceeds $45,000 for each 12 months, issue to further boosts in subsequent years.
  4. Companies are demanded to present workers with at the very least 14 days to critique a restrictive covenant arrangement and make your mind up irrespective of whether to indication, despite the fact that the staff has the option of signing the arrangement before the 14-day period of time has finished. Employers need to also recommend employees that they have the proper to seek advice from with an attorney in advance of getting into into a restrictive covenant settlement. 
  5. An worker can recover attorneys’ service fees and charges from an employer if the employee is the prevailing occasion in a civil action or arbitration submitted by an employer to enforce non-level of competition or non-solicitation covenants. 
  6. Non-competitiveness and non-solicitation covenants are not enforceable against an personnel who has shed their career thanks to COVID-19 or to “circumstances that are very similar to the COVID-19 pandemic” unless of course enforcement of the restrictive covenant arrangement incorporates the receipt of payment equal to the employee’s base wage at the time of termination for the period of enforcement, minus any compensation earned by means of subsequent work. 
  7. The new law delivers the Illinois Legal professional Normal with broad authority to examine employer carry out when there is “reasonable cause” to feel that an employer is engaged in a sample or follow prohibited by the IFWA. The Illinois Legal professional General is permitted to request compensatory damages and equitable treatments versus companies, which includes financial penalties of $5,000 for each violation or $10,000 for each and every repeat violation inside of a 5-12 months time period. 

What Should Illinois Employers Do?

Appreciably, the legal criteria established forth in the new regulation do not apply to restrictive covenant agreements that are entered into prior to the powerful date of the legislation, or January 1, 2022. In other phrases, employers who have entered into lawfully enforceable agreements with their workers beneath the recent state of the typical regulation would be equipped to rely on and implement these agreements beneath the preexisting – and significantly less restrictive – authorized expectations. 

Accordingly, we endorse that you think about examining your current restrictive covenant agreements to maximize the prospective for enforcement in progress of January 1, 2022. Even more, you should really start out organizing for the changes that will come to be successful on January 1, 2022. Employers who fail to do so will locate they have useful and authorized issues enforcing their upcoming agreements.