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Pending Illinois Legislation Would Further Limit Covenants Not to Compete

Illinois lawmakers are considering a measure to exempt more workers from restrictions on seeking new jobs after leaving an employer. The bill would add to the protections set out in the 2016 Illinois Freedom to Work Act, which bans covenants not to compete on certain workers. Both the IFWA and the proposed law follow a national legal trend towards the limitation of noncompete agreements.

The IFWA defines a covenant not to compete as a contract that prevents “low-wage” employees from performing specific types of work for certain other employers. The pending bill, HB 789, proposes to remove the term “low-wage” and to enlarge the IFWA’s scope to prohibit noncompete agreements that impose adverse financial consequences on former employees.

The IFWA currently prohibits employers from imposing covenants not to compete on employees with pay ranging from minimum wage up to $13 per hour. The amended law would make non-compete agreements unenforceable unless the employee’s actual or expected annual earnings are greater than $75,000, with this threshold increasing to $80,000 in 2027, $85,000 in 2032 and $90,000 in 2037.

HB 789 would also restrict when employers can impose covenants not to solicit — which prevent employees from seeking business from the employer’s clients, vendors, suppliers or other key contacts. Covenants not to solicit would be unenforceable unless the employee’s actual or expected annual earnings exceed $45,000. That threshold would increase to $47,500 in 2027, $50,000 in 2032 and $52,500 in 2037.

The following types of contracts are not considered covenants not to compete or solicit and so would be exempt from the proposed law:

  • Confidentiality agreements
  • Covenants involving the protection of trade secrets
  • Covenants involving the sale or purchase of a business
  • Covenants requiring employees to provide advance notice when quitting
  • Covenants banning employees from reapplying after being fired

Given the changing legal environment, it’s a good idea for employers to consult with a knowledgeable restrictive covenant attorney who can review their policies to ensure they are complying with the IFWA. An attorney can also advise about what changes in employment practices may be necessary if HB 789 becomes law.

The skilled lawyers at the Chicago business law firm of Schwartz Law Group, LLC have substantial experience in the field of restrictive employment agreements. To discuss how Illinois law impacts your particular situation and how the proposed changes may affect you, call us at 312-436-1442 or contact us online to request a consultation with a member of our team.

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