What Are Non-Compete Agreements and Why Are They So Important to Businesses?
Non-compete agreements are utilized by businesses looking to ensure that an ex-employee does not leave their company and immediately join the workforce of a direct competitor. These clauses are often part of the initial contract negotiations and are included in the hiring process. The clauses are favored by businesses worried about employees taking company secrets and work practices to the competition and also help ensure that the competition doesn’t look to ‘poach’ job candidates.
While this is a valuable tool for companies looking to maintain their strategies and keep their talented employees close, it’s not a subject without controversy. Workers typically are less fond of non-compete clauses than their employers are. When a worker is released from their position at a company, it only makes sense to use their marketable skills in a similar role at a different place of work. However, a valid non-compete agreement may deny the employee that opportunity, forcing them to look for employment at a job that is not considered a ‘competitor’ of their ex-employer.
What Are the New Amendments to Illinois’ Non-Compete Laws?
On January 1st, 2022, the amended Freedom to Work Act (IFWA) went into effect. Signed by Governor Pritzker, these new regulations make dramatic changes to Illinois’ legal non-compete agreements. The new regulations alter what sort of non-compete clauses are valid and enforceable. Both employers and employees must understand the shift in the laws surrounding this matter.
The state requires ‘adequate consideration’ for a valid non-compete agreement. This adequate consideration is defined as at least two years of employment at the company asking for a non-compete agreement or other other ‘adequate consideration’ to support the non-compete agreement. The latter part of the new deal is vague. Still, the law says that a period of employment can be coupled with professional or financial benefits that the employee enjoyed during their tenure with the company. This would suggest that the two-year requirement is not always necessary, provided that the state views the ‘professional or financial benefits’ as ‘adequate.’
There is a legitimate reason to believe that some employers and ex-employees may disagree with what should be considered ‘adequate’ and that the disagreement will likely be decided in a courtroom.
What Are the Minimum Salary Requirements for Non-Competes in Illinois?
When IFWA was initially passed in 2017, it outlawed non-compete clauses for low-wage workers. Previously, employers were prohibited from enforcing non-compete agreements on employees making minimum wage or less than $13 an hour. Now, the amended Act does away with language about low-wage workers and instead focuses on annual salaries.
Employers are prohibited from entering a non-compete agreement with an employee expecting to make less than $75,000. This amount will increase every five years until 2037 when the number reaches $90,000.
Similarly, employers are prohibited from holding employees to a non-solicit clause if that employee’s annual salary is below $45,000. Likewise, this number will also increase every five years.
Put simply, employers can only enter into a valid non-compete clause if their employee makes more than $75,000 a year and can only enforce a legal non-solicit agreement if the employee earns more than $45,000 annually. As a benefit to employers, the annual earnings can include base salaries, bonuses, and commissions.
What if an Employee Works for Just Under Two Years at a Company?
Generally speaking, an employee’s tenure with a company must last at least two years for a non-compete clause to be considered valid. However, what if that employee resigns from a company just shy of their two-year mark of employment?
The amendments to the law are still new, and there will be instances of litigation as employees and employers both seek to test its parameters. But, as we understand the law today, it does appear likely that an employee could step away from their job just shy of their two years with a company in order to avoid the non-compete agreement.
However, if the employer provided their employee with additional ‘professional or financial benefits,’ the law may side with the employer instead.
What Industries Typically Do Not Allow Non-Compete Agreements?
Non-compete agreements are illegal in the construction industry. The Act defines ‘construction’ as any employees who work to add or subtract from any building, structure, project, development, or real estate property. This rule does not apply to employees involved in the construction industry whose jobs revolve around management, sales, or architectural design.
Non-compete clauses are also not allowed by certain employees who have entered into collective bargaining agreements under the Illinois Educational Labor Relations Act or the Illinois Public Labor Relations Act.
Contact a Legal Team Experienced in Employment Law Today
If you have any questions or concerns about non-compete agreements in Illinois, please contact S.T. Legal Group today. Our law practice has years of experience helping clients in practice areas like non-compete agreements, non-solicit clauses, non-disclosure agreements, and severance agreements.
The laws surrounding employment in Illinois continue to shift and change. Keeping up with the rights and responsibilities of employees and their employers can be challenging. But it doesn’t have to be left up to you. A legal professional who works in employment law can be a valuable asset to shaping your business and your career while always remaining mindful of new rules and regulations.
Contact our law offices today for a case evaluation. 847.447.2927