The Illinois legislature passed Senate Bill 672 (“SB 672”) significantly changing non-compete and non-solicitation law in Illinois. The bill is expected to be signed into law by Governor JB Pritzker and go into effect on January 1, 2022.
Under SB 672 a covenant not to compete or solicit is illegal and void unless: (1) the employee receives adequate consideration; (2) the covenant is ancillary to a valid employment relationship; (3) the covenant is no greater than is required for the protection of a legitimate business interest of the employer; (4) the covenant does not impose undue hardship on the employee; and (5) the covenant is not injurious to the public.
SB 672 defines “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.” Moreover, SB 672 defines a “legitimate business interest of the employer” as a totality-of-circumstances test that should evaluate several factors. SB 672 identifies factors that may be considered in this analysis, including, but not limited to:
- the employee’s exposure to the employer’s customer relationships or other employees;
- the near-permanence of customer relationships;
- the employee’s acquisition, use, or knowledge of confidential information through the employee’s employment;
- the time restrictions;
- the place restrictions, and
- the scope of the activity restrictions.
Additional provisions in SB 672 include:
- Prohibitions on all non-compete agreements for employees making less than $75,000 per year, which will increase by $5,000 every five years until 2037, and on all non-solicitation agreements for employees making less than $45,000 per year, which will increase by $2,500 every five years until 2037;
- Requiring agreements to provide a waivable 14 calendar day review period, and advising the employee to consult with an attorney before signing the agreement;
- Providing attorneys’ fees and costs to the employee if the employee prevails in a lawsuit brought by the employer seeking enforcement of the agreement;
- Prohibiting employers from enforcing restrictive covenants with an employee 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.”
Existing non-compete and non-solicitation agreements will 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.
If you have any questions regarding the issues raised in this client alert, please contact your Labor and Employment counsel at Smith, Gambrell & Russell, LLP.