After the Illinois Freedom to Work Act (IFWA) went into effect, every employer in the state should know this law’s wide-ranging requirements.
The Act focuses on the ability of employers to enforce restrictive covenants with employees, including non-compete and non-solicitation agreements.
Many employers across a wide range of industries have been implementing restrictive covenants with employees for a long time. Every company should know the new restrictions and prohibitions under the Freedom to Work Act. If your business does not comply with the Act, you can find yourself with serious legal concerns.
To discuss issues relating to non-competes or non-solicitation agreements and possible litigation against employees who breach such contracts, immediately consult a business litigation attorney. If a former employer tries to prevent you from making a living in violation of the Freedom to Work Act, a business lawyer can help you explore your options.
What Does The Act Apply To?
The law applies to all Illinois employers and restrictive covenants deployed after January 1, 2022. It does not apply to agreements implemented before the Act took effect. However, many employers who routinely use non-compete or non-solicitation agreements with employees must ensure that any agreements in place in 2022 or 2023 fully comply with the law.
Important Considerations For Employers Under The Freedom To Work Act
Each state has its laws regarding the enforceability of restrictive covenants against employees and former employees. Before the Freedom to Work Act, common law largely governed these agreements in Illinois. However, the new law drastically changes certain legal standards for these agreements to be enforceable in court.
Codifying Court Rulings Regarding Consideration
Illinois courts have been instrumental in forming the law regarding the enforceability of restrictive covenants involving the workforce in the state. Part of this judicial analysis has centered around what constitutes adequate consideration to support an enforceable non-solicitation or non-compete agreement. The IFWA codified this standard for consideration in state statutes.
Now, under Illinois law, adequate consideration for this type of agreement exists if:
- The employment relationship existed for two years or longer after the employee signed the agreement; or
- The employee received professional or financial benefits from the employer that constitute independent consideration.
The IFWA does not specifically define what qualifies as adequate professional or financial benefits, so this will likely be an additional matter for court analysis in non-compete litigation.
Required Earnings Of An Employee
An employer may not execute an enforceable covenant not to compete unless the specific employee’s expected or actual earnings are more than $75,000 annually. For an employer to implement an enforceable covenant not to solicit, the employee signing must earn or expect to earn at least $45,000 annually.
These earning thresholds are new requirements in Illinois, and they will both increase over the coming years. If a company wants an employee who earns less than the standard to sign a restrictive covenant, the agreement will likely be unenforceable.
Time To Review The Contract
The Freedom to Work Act requires employers to give employees or prospective employees a minimum of 14 days to review the language of a restrictive covenant before they must decide whether they want to sign it. Employers must also inform employees that they can have an attorney review the terms of the agreement before they sign it.
Employees can decide to sign a covenant sooner and without legal counsel, but the employer must give them these opportunities for the agreement to be enforceable.
Termination Of The Employment Relationship
If an employee loses their job due to COVID-19 or any circumstances similar or related to COVID-19, the employer cannot enforce a non-solicitation or non-compete agreement against the employee. However, employers might still maintain an enforceable restrictive covenant against the employee if the company provides compensation to the employee equal to their base salary for the enforcement period of the agreement (minus compensation the employee earns from subsequent employment).
Call a lawyer to see if you can enforce your agreement, or if a former employer can enforce the agreement against you.
The Rights Of An Employee Who Wins At Litigation
If your business brings a lawsuit against an employee for a breach of a restrictive covenant, the court will determine whether the agreement is enforceable under the law and whether a violation occurred. If the court finds it in the employee’s favor, the Freedom to Work Act now provides the employee with attorney’s costs and fees from the employer that filed the unsuccessful lawsuit.
Getting The Attorney General Involved
The IFWA also gives authority to the Illinois Attorney General to investigate the conduct of employers when the AG office has reasonable cause to believe a company is engaging in a violative pattern of conduct.
If the AG determines that an employer is non-compliant with the new requirements of the IFWA, the law allows the office to seek the following against the company:
- Compensatory damages
- Equitable remedies
- Penalties of $5,000 per violation
- Penalties of $10,000 per each subsequent violation for five years
Steps For Companies To Take
As you can see, the stakes are high for Illinois employers when it comes to complying with the Freedom of Work Act. Many employers who had a regular practice of entering into non-competes or non-solicitation agreements with employees must now ensure that such covenants do not violate the IFWA. Employers can also face steep penalties from state authorities for such violations.
Every company that uses restrictive covenants must ensure that new agreements since the beginning of 2022 comply with the law. If your company does not, it can face costly practical and legal issues. Never hesitate to consult with a business attorney about the enforceability of your agreements under the IFWA.
If you can no longer enter into agreements with certain employees due to their earning threshold or other legal considerations, your business should consider other ways to protect itself from unfair competition.
What About Past Agreements?
As mentioned, the Illinois Freedom to Work Act does not apply to non-compete or non-solicit agreements in effect before January 1, 2022. If your business has existing agreements signed in 2021 or before, the prior common law and judicial rulings regarding restrictive covenants should apply if litigation is necessary to enforce a contract.
While the preexisting standards for non-competes and non-solicitation agreements were much less restrictive than the new IFWA standards, it might become more challenging to enforce past agreements as courts begin following the new law in litigation.
Overview Of Employment-Related Restrictive Covenants
If your company is considering implementing restrictive covenants with employees, you should understand all the practical and legal implications of these agreements.
Non-Compete Agreements
Employers and employees typically sign non-compete agreements at the start of the employment relationship. If the employment relationship ends, the agreement prohibits the former employee from engaging in direct or indirect competition with the former employer for a certain time.
Some prohibitions in non-compete agreements might include going to work for a competing individual or company, developing or offering the same services or products as the former employer, starting a competing company of their own, or recruiting other employees from the former employer to work for the new competition.
While non-compete agreements can benefit companies, they can restrict the rights of former employees to continue to work and earn in their given profession. For this reason, the law will not always enforce an employer’s right to restrict competition.
Before the IFWA, these agreements had to be reasonable in scope, necessary to protect a company’s legitimate business interests, and supported by consideration. Now, there are even more requirements to enforce a non-compete in Illinois.
Non-Solicitation Agreements
A non-solicitation agreement is a legal contract in which an employee agrees not to solicit a former employer’s customers or clients for their benefit. This agreement often prohibits former employees from recruiting others from the company to come work for a competing interest. These agreements might happen at the start of an employment relationship, but they are also common as part of severance agreements.
Some states, like California, refuse to enforce any type of non-solicitation agreement. However, in other states, enforceability often depends on having a valid business-related reason for the non-solicitation agreement, such as protecting trade secrets or customer lists. Such information must be valuable to the company; for example, a company must have spent resources to build a customer list for it to be worth protecting. The information must also not be available to the public.
Further, keep in mind that clients, customers, and employees can always voluntarily leave one provider or employer and join a competing interest. If someone leaves for a competitor without direct solicitation by a former employee, a non-solicitation agreement cannot prohibit it.
Litigation To Enforce Restrictive Covenants
In some cases, you may have an employee that attempts to avoid their legal obligations under their non-compete or non-solicitation agreement. When this occurs, it can significantly impact your company’s bottom line - especially if they are trying to wrongfully take clients or employees. In some cases, an employee who violates a restrictive covenant may even threaten your business’s continued existence.
When this occurs, you may need to bring legal action against your employee. If you succeed, you can enjoin them from engaging in the prohibited action and obtain compensatory relief for your business’s losses. However, litigation is extremely complicated, so work with an experienced attorney from the moment you realize an employee violated a restrictive covenant.
Some specific things a business litigation attorney can do on your behalf include the following and more.
Gather Evidence Of The Violation
If you suspect or know that your employee is in violation or plans to violate a restrictive covenant, the first thing your attorney will do is find evidence of the violation. This type of evidence can include emails, texts, phone calls, or other forms of communication. In some cases, your attorney may need to subpoena this type of evidence to prove the violations.
Craft Arguments In Support Of Or Against Enforceability
With the new requirements under the IFWA, Illinois courts will closely examine whether a specific agreement is in compliance and enforceable. Before you file a lawsuit, you need an expert business attorney to determine that your non-compete or non-solicitation agreement is enforceable under the law. You do not want to file a lawsuit and have the court throw it out or find it in favor of the employee because your contract did not meet the requirements.
Conversely, a former employee should know when they, or a former employer, clearly violated the IFWA, before taking the matter to court.
Prepare To Counter Or Use Employee Defenses
There are often various defenses that employees can raise to allegations of violating restrictive covenants, and employees often aggressively defend against such lawsuits. Some defenses might include the unenforceability of the contract, insufficient evidence to prove a violation, or material contract breaches by the employer, among others.
Your lawyer should predict what defenses you might expect and identify whether you can successfully counter these legal or equitable defenses.
Always Speak With An Experienced Business Litigation Attorney
Considering whether you have a successful lawsuit is critical, especially after the impact of the IFWA. Now that Illinois law gives prevailing employees the right to collect all attorneys fees and costs, employers cannot bring frivolous lawsuits to enforce restrictive covenants.
If you believe you have a legitimate lawsuit for a breach of an employment contract, or if you think a former employer’s attempts to enforce an employment contract violate the IFWA, consult a business litigation attorney as soon as possible. A lawyer familiar with Illinois law can represent you throughout the litigation process should you choose to pursue a case.
An experienced lawyer from a business litigation law firm in Chicago can save you or your business time, money, and even embarrassment by taking the case for you. Look for a firm with flexible payment plans that best suit your business’s needs, like blended fees, mixed fees, or full contingencies. King & Jones works with clients to offer fee arrangements that fit the circumstances of the case.
Companies must take steps to ensure they comply with all relevant laws, including the Illinois Freedom to Work Act. However, even with full compliance, legal disputes over contracts and restrictive covenants can still arise. Always seek the proper legal counsel if you believe you have a matter for business litigation.