Is this Illinois non-compete (or non-solicit) enforceable?
For covenants the Act defines (agreements 'entered into after the effective date of this amendatory Act of the 102nd General Assembly' (820 ILCS 90/5; source line P.A. 102-358, eff. 1-1-22)) statutory thresholds come before any reasonableness question. Under the Illinois Freedom to Work Act a covenant not to compete is void and unenforceable unless the employee's actual or expected annualized earnings exceed $75,000 (rising to $80,000 on 1-1-2027, $85,000 on 1-1-2032, $90,000 on 1-1-2037), and a covenant not to solicit unless earnings exceed $45,000 (rising to $47,500, $50,000, $52,500 on the same dates), and both numbers turn on definitions the Act supplies: a "covenant not to solicit" is an agreement restricting the employee from soliciting the employer's employees for employment OR from soliciting, to sell products or services of any kind to, or interfering with the employer's relationships with, its clients, prospective clients, vendors, prospective vendors, suppliers, prospective suppliers "or other business relationships", and "earnings" is taxable compensation reflected or expected to be reflected as wages, tips and other compensation on the employee's IRS Form W-2 PLUS elective deferrals not so reflected, such as contributions to a 401(k) or 403(b) plan, a flexible spending account, a health savings account or commuter benefit deductions (820 ILCS 90/5); both are void and illegal as to individuals employed in construction (except construction employees who primarily perform management, engineering or architectural, design or sales functions, or who are shareholders, partners or owners of the employer), and covenants not to compete are void and illegal as to individuals covered by a collective bargaining agreement under the Illinois Public Labor Relations Act or the Illinois Educational Labor Relations Act (820 ILCS 90/10). A covenant is illegal and void unless the employee receives adequate consideration, it is ancillary to a valid employment relationship, it is no greater than required to protect a legitimate business interest, it imposes no undue hardship and it is not injurious to the public (820 ILCS 90/15); and void unless the employer advised the employee in writing to consult an attorney and gave at least 14 calendar days to review it (820 ILCS 90/20). 'Adequate consideration' means 2 years' employment after signing, or consideration otherwise provided, 'which consideration can consist of a period of employment plus additional professional or financial benefits or merely professional or financial benefits adequate by themselves' (820 ILCS 90/5). At common law the supreme court applies a three-prong rule of reason in which the legitimate business interest is judged on the totality of the facts and circumstances, the factors being only nonconclusive aids, and in Reliable Fire that cut in the EMPLOYER's favour: the circuit court and a sharply divided appellate court had held the covenants unenforceable for want of a legitimate business interest, and the supreme court reversed both and remanded for the totality of the circumstances to be developed (Reliable Fire Equipment Co. v. Arredondo). What the Act DOES reach is wider than a classic non-compete: the definition covers an agreement restricting the employee from any work for another employer for a specified period, any work in a specified geographical area, or work similar to the employee's work for the employer, and it 'also means' an agreement that 'by its terms imposes adverse financial consequences on the former employee if the employee engages in competitive activities after the termination of the employee's employment', so a forfeiture-for-competition term is a covenant not to compete under the Act. What the Act does NOT regulate is in the same definition: a "covenant not to compete" does not include a covenant not to solicit, a confidentiality agreement, a trade-secret or invention covenant, an invention assignment, a covenant given on the purchase or sale of a business's goodwill or an ownership interest, a paid notice-of-termination (garden-leave) period, or a no-reapply agreement (820 ILCS 90/5). Two more voids: a covenant with an employee terminated, furloughed or laid off for COVID-19-related or similar circumstances is void unless enforcement includes compensation equal to base salary for the enforcement period less subsequent earnings (§ 10(c)), and a covenant entered into after January 1, 2025 is unenforceable as to mental-health services to veterans and first responders where enforcement would likely raise their cost or difficulty (§ 10(f)). When a court does consider reformation, the factors include the fairness of the restraints as written, whether they reflect a good-faith effort to protect a legitimate business interest, the extent of the reformation, and whether the parties included a clause authorizing modification (§ 35(b)). The Attorney General may sue where there is "reasonable cause to believe that any person or entity is engaged in a pattern and practice prohibited by this Act", initiating or intervening in a civil action in the People's name "to obtain appropriate relief" (§ 30(a)), and may obtain a civil penalty of up to $5,000 per violation or $10,000 per repeat violation within five years, each affected employee a separate violation (§ 30(d)).
The trap
The Illinois killers are procedural and mechanical. The 14-day review period and the written advice to consult a lawyer are conditions of validity, not best practice: a covenant signed on day one with no attorney advisory is void however reasonable it is. The two-year consideration rule means a covenant supported only by at-will employment fails if the employee leaves before two years, unless the employer paid separate professional or financial benefits. Construction employees are carved out, except those who primarily perform management, engineering or architectural, design or sales functions or who own part of the employer; and employees covered by a collective bargaining agreement under the two public-sector labor relations acts cannot be bound by a non-compete. And the statute discourages rescue: extensive judicial reformation 'may be against the public policy of this State', so blue-pencilling is discretionary, not a right (820 ILCS 90/35). Finally, if the employer sues and loses, the employee recovers all costs and reasonable fees (820 ILCS 90/25).
20 authorities
- statute820 ILCS 90/10enactment date not established
The words that state the rule
(a) No employer shall enter into a covenant not to compete with any employee unless the employee's actual or expected annualized rate of earnings exceeds $75,000 per year. This amount shall increase to $80,000 per year beginning on January 1, 2027, $85,000 per year beginning on January 1, 2032, and $90,000 per year beginning on January 1, 2037. A covenant not to compete entered into in violation of this subsection is void and unenforceable.
- statute820 ILCS 90/10enactment date not established
The words that state the rule
(b) No employer shall enter into a covenant not to solicit with any employee unless the employee's actual or expected annualized rate of earnings exceeds $45,000 per year. This amount shall increase to $47,500 per year beginning on January 1, 2027, $50,000 per year beginning on January 1, 2032, and $52,500 per year beginning on January 1, 2037. A covenant not to solicit entered into in violation of this subsection is void and unenforceable.
- statute820 ILCS 90/10enactment date not established
The words that state the rule
(d) A covenant not to compete is void and illegal with respect to individuals covered by a collective bargaining agreement under the Illinois Public Labor Relations Act or the Illinois Educational Labor Relations Act. (e) A covenant not to compete or a covenant not to solicit is void and illegal with respect to individuals employed in construction, regardless of whether an individual is covered by a collective bargaining agreement. This subsection (e) does not apply to construction employees who primarily perform management, engineering or architectural, design, or sales functions for the employer or who are shareholders, partners, or owners in any capacity of the employer.
- statute820 ILCS 90/15enactment date not established
The words that state the rule
A covenant not to compete or a covenant not to 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.
- statute820 ILCS 90/20enactment date not established
The words that state the rule
A covenant not to compete or a covenant not to solicit is illegal and void unless (1) the employer advises the employee in writing to consult with an attorney before entering into the covenant and (2) the employer provides the employee with a copy of the covenant at least 14 calendar days before the commencement of the employee's employment or the employer provides the employee with at least 14 calendar days to review the covenant.
- statute820 ILCS 90/5enactment date not established
The words that state the rule
"Adequate consideration" means (1) the employee worked for the employer for at least 2 years after the employee signed an agreement containing a covenant not to compete or a covenant not to solicit or (2) the employer otherwise provided consideration adequate to support an agreement to not compete or to not solicit, which consideration can consist of a period of employment plus additional professional or financial benefits or merely professional or financial benefits adequate by themselves.
- statute820 ILCS 90/35enactment date not established
The words that state the rule
(a) Extensive judicial reformation of a covenant not to compete or a covenant not to solicit may be against the public policy of this State and a court may refrain from wholly rewriting contracts. (b) In some circumstances, a court may, in its discretion, choose to reform or sever provisions of a covenant not to compete or a covenant not to solicit rather than hold such covenant unenforceable.
The words that state the rule
A restrictive covenant, assuming it is ancillary to a valid employment relationship, is reasonable only if the covenant: (1) is no greater than is required for the protection of a legitimate business interest of the employer-promisee; (2) does not impose undue hardship on the employee-promisor, and (3) is not injurious to the public.
The words that state the rule
However, we hold that such factors are only nonconclusive aids in determining the promisee's legitimate business interest, which in turn is but one component in the three-prong rule of reason, grounded in the totality of the circumstances.
- statute820 ILCS 90/5enactment date not established
The words that state the rule
"Covenant not to compete" means an agreement between an employer and an employee that is entered into after the effective date of this amendatory Act of the 102nd General Assembly that restricts the employee from performing: (1) any work for another employer for a specified period of time; (2) any work in a specified geographical area; or (3) work for another employer that is similar to employee's work for the employer included as a party to the agreement. "Covenant not to compete" also means an agreement between an employer and an employee, entered into after the effective date of this amendatory Act of the 102nd General Assembly, that by its terms imposes adverse financial consequences on the former employee if the employee engages in competitive activities after the termination of the employee's employment with the employer.
- statute820 ILCS 90/5enactment date not established
The words that state the rule
"Covenant not to compete" does not include (1) a covenant not to solicit, (2) a confidentiality agreement or covenant, (3) a covenant or agreement prohibiting use or disclosure of trade secrets or inventions, (4) invention assignment agreements or covenants, (5) a covenant or agreement entered into by a person purchasing or selling the goodwill of a business or otherwise acquiring or disposing of an ownership interest, (6) clauses or an agreement between an employer and an employee requiring advance notice of termination of employment, during which notice period the employee remains employed by the employer and receives compensation, or (7) agreements by which the employee agrees not to reapply for employment to the same employer after termination of the employee.
- statute820 ILCS 90/10enactment date not established
The words that state the rule
(c) No employer shall enter into a covenant not to compete or a covenant not to solicit with any employee who an employer terminates or furloughs or lays off as the result of business circumstances or governmental orders related to the COVID-19 pandemic or under 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. A covenant not to compete or a covenant not to solicit entered into in violation of this subsection is void and unenforceable.
- statute820 ILCS 90/10enactment date not established
The words that state the rule
(f) Any covenant not to compete or covenant not to solicit entered into after January 1, 2025 (the effective date of Public Act 103-915) shall not be enforceable with respect to the provision of mental health services to veterans and first responders by any licensed mental health professional in this State if the enforcement of the covenant not to compete or covenant not to solicit is likely to result in an increase in cost or difficulty for any veteran or first responder seeking mental health services.
- statute820 ILCS 90/35enactment date not established
The words that state the rule
Factors which may be considered when deciding whether such reformation is appropriate include the fairness of the restraints as originally written, whether the original restriction reflects a good-faith effort to protect a legitimate business interest of the employer, the extent of such reformation, and whether the parties included a clause authorizing such modifications in their agreement.
- statute820 ILCS 90/30enactment date not established
The words that state the rule
In addition, the Attorney General may request and the court may impose a civil penalty not to exceed $5,000 for each violation or $10,000 for each repeat violation within a 5-year period. For purposes of this Section, each violation of this Act for each person who was subject to an agreement in violation of this Act shall constitute a separate and distinct violation.
The words that state the rule
For the foregoing reasons, the judgment of the appellate court and the order of the circuit court of Du Page County are reversed, and the cause is remanded to the circuit court for further proceedings consistent with this opinion. ¶ 49 Judgments reversed; ¶ 50 cause remanded.
- statute820 ILCS 90/25enactment date not established
The words that state the rule
Sec. 25. Remedies. In addition to any remedies available under any agreement between an employer and an employee or under any other statute, in a civil action or arbitration filed by an employer (including, but not limited to, a complaint or counterclaim), if an employee prevails on a claim to enforce a covenant not to compete or a covenant not to solicit, the employee shall recover from the employer all costs and all reasonable attorney's fees regarding such claim to enforce a covenant not to compete or a covenant not to solicit, and the court or arbitrator may award appropriate relief.
- statute820 ILCS 90/5enactment date not established
The words that state the rule
"Covenant not to solicit" means an agreement that is entered into after the effective date of this amendatory Act of the 102nd General Assembly between an employer and an employee that (1) restricts the employee from soliciting for employment the employer's employees or (2) restricts the employee from soliciting, for the purpose of selling products or services of any kind to, or from interfering with the employer's relationships with, the employer's clients, prospective clients, vendors, prospective vendors, suppliers, prospective suppliers, or other business relationships.
- statute820 ILCS 90/5enactment date not established
The words that state the rule
"Earnings" means the compensation, including earned salary, earned bonuses, earned commissions, or any other form of taxable compensation, reflected or that is expected to be reflected as wages, tips, and other compensation on the employee's IRS Form W-2 plus any elective deferrals not reflected as wages, tips, and other compensation on the employee's IRS Form W-2, such as, without limitation, employee contributions to a 401(k) plan, a 403(b) plan, a flexible spending account, or a health savings account, or commuter benefit-related deductions.
- statute820 ILCS 90/30enactment date not established
The words that state the rule
(a) Whenever the Attorney General has reasonable cause to believe that any person or entity is engaged in a pattern and practice prohibited by this Act, the Attorney General may initiate or intervene in a civil action in the name of the People of the State in any appropriate court to obtain appropriate relief.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.