Beyond the Headlines: A Practical Illinois Playbook for Employee Non-Compete Agreements (Part 2)
This is Part 2 of a three-part series on non-compete agreements in Illinois. Part 1 summed up the national headlines around the FTC’s attempted non-compete ban and what employers should expect going forward. Part 3 will explore contractual alternatives and the legislative outlook. Stay tuned for the final installment later this month.
If you’re an Illinois employer struggling to understand the proper approach to employee non-compete agreements, you’re not alone. On top of recent, headline-grabbing moves at the federal level, the state-to-state divide on the legality and limitations of employee non-competes continues to widen.
This guide walks through what has happened recently at the federal level, explains the current requirements of Illinois law, and offers practical ideas for protecting your business going forward.
Fundamentals of the Illinois Freedom to Work Act (IFWA)
The Illinois Freedom to Work Act (IFWA), 820 ILCS 90, as made effective January 1, 2022, sets clear rules for when employers may use non‑compete covenants, which are restrictions prohibiting employees from working for a competitor, and non-solicitation covenants, which are restrictions prohibiting employees from soliciting the company’s customers or workforce.
Applicability
The IFWA provisions discussed in this guide apply to covenants not to compete and covenants not to solicit that are executed or materially modified on or after January 1, 2022. Agreements signed before that date are analyzed under pre‑existing law, though many employers have chosen to update legacy, pre‑2022 agreements so that the language aligns with current statutory requirements and definitions.
For purposes of this article, the focus is on post-employment non-compete and non-solicitation agreements—restrictions that apply after an employee leaves the company. Competition during employment is treated differently. In addition to any contractual non-competition provisions in an employment agreement, Illinois common law imposes a duty of loyalty that prohibits employees from undermining or diverting business from their employer. As a result, many activities that must be narrowly tailored—or cannot be restricted at all—once employment ends are effectively prohibited while employment is ongoing.
Income Thresholds
Illinois imposes minimum earnings requirements for enforceability of non-compete and non-solicitation restrictions:
- Non‑competes: An employer may not enter into a covenant not to compete with an employee whose actual or expected annualized earnings are $75,000 or less.
- Non‑solicitation: An employer may not enter into a covenant not to solicit with an employee whose actual or expected annualized earnings are $45,000 or less.
“Earnings” are defined broadly to include salary, earned bonuses, commissions, and other taxable compensation reflected (or expected to be reflected) on the employee’s Form W‑2, plus certain pre‑tax deferrals such as 401(k), 403(b), FSA, HSA, and commuter‑benefit contributions.
These dollar thresholds increase automatically every five years, beginning in 2027:
- Non‑competes: $80,000 (2027), $85,000 (2032), $90,000 (2037)
- Non‑solicits: $47,500 (2027), $50,000 (2032), $52,500 (2037)
Notice Requirement
A non‑compete or non‑solicit is illegal and void unless the employer advises the employee in writing to consult with an attorney before entering into the covenant and provides a copy of the covenant at least 14 calendar days before the commencement of employment, or gives the employee at least 14 calendar days to review the covenant before signing. The employer still complies with the statute even if the employee voluntarily signs earlier.
Adequate Consideration
Non‑compete and non‑solicitation covenants must also be supported by “adequate consideration.” Under the IFWA, that means either:
- The employee worked for the employer for at least two years after signing the agreement containing the covenant; or
- The employer otherwise provides professional or financial benefits that are sufficient on their own or in combination with a period of employment to support the covenant (for example, a meaningful raise, promotion, equity grant, or bonus tied to the new restriction).
Nominal bonuses, standard benefits, or “continued employment” alone—without two years of post‑execution employment—are unlikely to satisfy this requirement. Employers should document any enhanced compensation or role expansion provided in exchange for new restrictive covenants and consult with legal counsel when in doubt.
Protected Categories and Situations
Separate from income thresholds, the IFWA categorically prohibits non‑competes (and, in some cases, non‑solicits) for certain workers and situations. Examples include construction workers, licensed mental health professionals, and public sector employees. These categories have exceptions, and additional categories exist where non-competes are prohibited. Employers should review the full list of protected categories and situations prior to preparing non-competes to confirm whether statutory limits apply to the workers being asked to sign one.
Garden-Leave Exception
So‑called “garden leave” arrangements (periods in which an employee remains employed, continues to receive compensation, and is required to give advance notice of resignation or termination) are expressly excluded from the statutory definition of a covenant not to compete.
In practice, this means a carefully drafted, paid notice period can sometimes function as a less risky—though more expensive— alternative to a post‑employment non‑compete.
Remedies
The IFWA significantly raises the stakes for employers attempting to enforce restrictive covenants.
- If an employer sues (or arbitrates) to enforce a non‑compete or non‑solicitation covenant and the employee prevails, the employee is entitled to recover all reasonable attorneys’ fees and costs from the employer, in addition to any other relief the court or arbitrator may award.
- Separately, the Illinois Attorney General can investigate patterns or practices of violations and bring a civil action. In such an action, the court may award damages, restitution, injunctive relief, and civil penalties.
In short, a poorly designed non‑compete can create not only an unenforceable contract but also fee‑shifting exposure and state‑level enforcement risk.
Beyond Statutory Compliance
Before the 2022 amendments, Illinois courts primarily governed non-compete agreements through judge-made law (common law). The IFWA supplements and largely codifies that framework rather than replacing it.
In Reliable Fire Equipment Co. v. Arredondo, 2011 IL 111871, the Illinois Supreme Court clarified the “rule of reasonableness” by rejecting rigid, formulaic tests previously used by lower courts. Instead, the Court held that while an employer’s legitimate business interest is a necessary component of the reasonableness test, it must be assessed under the “totality of the facts and circumstances” of the individual case.
Although the IFWA incorporates this totality-of-the-circumstances approach, courts continue to apply Reliable Fire and subsequent cases when evaluating restrictive covenants. In practice, this means that employers must consider both the statute and the common-law framework when drafting or enforcing non-compete or non-solicitation agreements, and reviewing pre-IFWA cases remains essential to assessing enforceability.
This is Part 2 of a three-part series on non-compete agreements in Illinois. Part 1 summed up the national headlines around the FTC’s attempted non-compete ban and what employers should expect going forward. Part 3 explores contractual alternatives and the legislative outlook.
At Replogle Legal Group, we help Illinois and New York businesses negotiate complex deals, build strategic partnerships and protect innovation. Schedule your free consultation today using the online calendar at the link below or contact Ryan Replogle by phone or email.