SENATE BILL 0672: ENFORCEABILITY AND IMPLICATIONS
Author: Grace Kuntz, Senior Editor
On May 24, 2021, the Illinois legislature unanimously passed Senate Bill 0672.[1] Senate Bill 0672 amends the Illinois Freedom to Work Act (IFWA).[2] One of the main reasons this bill was passed was to address the enforceability of non-compete agreements and reduce litigation costs that typically arise with these types of agreements. The regulations imposed by Senate Bill 0672 only apply to non-compete agreements that are entered into after the effective date of the Act.[3] The Act became effective on January 1, 2022. Illinois Senate Bill 0672 puts stringent restrictions on the enforceability of non-compete agreements.[4] Employers around the country may be affected by Senate Bill 0672 if they seek to enforce a non-compete agreement in Illinois. Familiarizing businesses with Senate Bill 0672 will better prepare their employees for the implications that may arise with the enforceability of their current non-compete agreements.
Section 10(a) of the Act states, “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.”[5] This dollar amount will be increased to $80,000 on 01/2027, $85,000 on 01/2032, and $90,000 on 01/2037.[6] Any non-compete agreement in violation of this section of the Act will be void and unenforceable.
Section 10(c) of the Act states a non-compete agreement cannot be entered into if 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.”[7] An exception does apply to this section. A non-compete agreement can be enforced if the non-compete agreement 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.”[8] Any non-compete agreement in violation of this section of the Act will be void and unenforceable.
Section 10(d) states a non-compete agreement is void and illegal when entered into with individuals covered by a collective bargaining agreement under the Illinois Public Relations Act, the Illinois Educational Labor Relations Act, or individuals employed in construction.[9] This section of the act does not apply to construction employees who primarily perform management, engineering, architectural, or sales functions for the employer. This section also excludes shareholders, partners, or owners of the employer.
Section 15 of the Act outlines the requirements for enforcing a valid non-compete agreement. A non-compete agreement will be void and illegal under section 15 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[10], (4) the covenant does not impose undue hardship on the employee, and (5) the covenant is not injurious to the public.”[11] The elements listed under Section 15 are closely tailored to the general requirements for non-compete agreements to be enforceable in states across the country.
However, Section 15 of the Act imposes additional requirements for ensuring an employee is informed about their obligations under the non-compete agreement. The employer must advise the employee in writing to consult with an attorney prior to entering the agreement. The employer must also provide the employee with a copy of the covenant at least 14 calendar days prior to the employee’s first day of employment, or provide the employee 14 days to review the covenant.[12]
In conclusion, if a non-compete agreement fits into one of the exceptions described in the bill, section 15 outlines the requirements for the agreement to be enforced. If a non-compete agreement was entered into prior to Senate Bill 0672 becoming effective, it is likely enforceable, as long as it is reasonable in geographic and temporal scope and it is necessary to protect an employer’s legitimate business interest. Businesses should consider modifying future non-compete agreements to conform with Senate Bill 0672 if they want the agreements to be enforceable in Illinois.
[1] Anne Mayetter & Tom O’Day, Illinois Enacts SB 0672, Strengthening Restrictive Covenant Limits, HushBlackwell, (Last Visited, July 17, 2022), https://www.huschblackwell.com/newsandinsights/illinois-enacts-sb-0672-strengthening-restrictive-covenant-limits.
[2] Id.
[3] Case law generally upheld the enforceability of non-compete agreements prior to Senate Bill 0672 being passed. “Under Illinois law, a postemployment restrictive covenant is enforceable only if it is reasonable in geographic and temporal scope and it is necessary to protect an employer’s legitimate business interest. Prairie Rheumatology Associates, S.C. v. Francis, 24 N.E.3d 58, 62 (Ill. App. Ct. 2014).
[4] Openstates, SB 672 Fair Food Delivery Act, SB 672, Illinois Senate (102nd), Open States.
[5] Fair Food Delivery Act, S.B. 0672, 102nd General Assembly (2022), https://legiscan.com/IL/text/SB0672/id/2428593/Illinois-2021-SB0672-Chaptered.html.
[6] Id.
[7] Id.
[8] Id.
[9] Id.
[10] When determining if a business interest is legitimate, the totality of the facts and circumstances of the specific case must be taken into consideration. Factors to consider are “the employees’ exposure to other employees or customers, the employees knowledge of confidential information and the time/place/scope of the restrictions.” Sarah Flotte, Major changes to Illinois’ non-compete and non-solicit laws: Company agreements likely require revision, (Mar. 14, 2022), https://www.perkinscoie.com/images/content/2/5/v3/251378/Westlaw-Today-Flotte-Prager-Major-Changes-to-IL.pdf.
[11] Fair Food Delivery Act, S.B. 0672, 102nd General Assembly (2022), https://legiscan.com/IL/text/SB0672/id/2428593/Illinois-2021-SB0672-Chaptered.html.
[12] Id.