Noncompete agreements: Illinois law will increase limits

Noncompete agreements: Illinois law will increase limits

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Under a bill passed unanimously by lawmakers this spring, and which Gov. J.B. Pritzker still must sign, employers are prohibited from imposing noncompetes on workers earning below $75,000 and from using nonsolicitation agreements on those making below $45,000. Advocates laud the move as a victory for economic mobility—especially as employees re-evaluate their priorities and job preferences during the pandemic. But some local businesses worry the changes are coming at a time of monumental uncertainty. With President Joe Biden recently directing the Federal Trade Commission to rein in the “unfair use” of noncompetes, the rules could continue shifting, and companies fear more restrictions will put their proprietary information, client lists and employee retention efforts at risk.

The measure awaiting Pritzker’s signature, known as Senate Bill 672, amends the FWA and was drafted by a bipartisan group that included the Illinois Chamber of Commerce, employment attorneys and union representation by the Illinois AFL-CIO. Another key addition: It allows employees to recoup attorneys’ fees if they win a lawsuit over a noncompete. This can also benefit businesses, which sometimes want to hire an employee bound by an overly broad covenant.

But the positives weren’t enough to outweigh the drawbacks for the Chicagoland Chamber of Commerce, which didn’t support the bill. Brad Tietz, the Chamber’s vice president for government relations, said his members took issue with the salary bands because some employees in that range have access to confidential information, such as customer lists or knowledge on how to use proprietary machinery. The bill also stipulates the salary threshold for noncompetes will increase by increments of $5,000 beginning in 2027 until it reaches $90,000 in 2037.  

“It’s generally our position that noncompetes are a critical tool used by businesses to protect their trade secrets and proprietary information,” Tietz said. “At some point, you are putting at risk some of their market share if you don’t have in place sufficient noncompetes clauses.” 

In its original form, the FWA limited noncompetes only for “low-wage” employees, which it defined as someone making minimum wage set by the local jurisdiction or $13 an hour, whichever was less. The changes, which will go into effect in January after Prtizker signs the bill but aren’t retroactive, also require companies to provide a 14-day review period when asking employees to accept a noncompete. 

Though few studies have tracked the ubiquity of noncompetes, one recent analysis with a small sample size—just 634 respondents—projected that about half of Illinois workplaces require at least some employees to sign noncompetes. Various industries, including banking, tech and manufacturing, use noncompetes, Tietz said. 

“I’m very sensitive to how different things affect different industries and businesses of different sizes,” he said. “Could there have been a more thoughtful approach is what I wonder.”  

Amit Bindra, a partner at The Prinz Law Firm and board member for the Illinois chapter of the National Employment Lawyers Association, helped draft the amendment and said it took two years of collaboration with different stakeholders. 

Senate Bill 672 began as an effort to bring more certainty to legal disputes, Bindra said. In recent years, state and federal judges have come to different conclusions about what invalidates a noncompete. NELA also wanted to give employees more leverage to settle disputes without incentivizing lawsuits. 

“Throughout this entire process, we were trying to be bipartisan,” Bindra said. “With the nature of noncompetes, businesses and employers have to be able to hire people. It leads to a situation where you can actually have consensuses.”

Bindra said the push to delineate income thresholds came from former State Sen. Heather Steans, the original bill sponsor who left office in January. NELA attorneys, the Illinois chamber and Steans’ office determined the salary bands by reviewing similar provisions in other states and historical wage data, Bindra said. 

The final bill also includes protections for workers who were laid off or furloughed because of the pandemic, requiring companies to pay lost wages if they enforce a noncompete. 

“Hopefully this allows for employee mobility,” Bindra said. “That would be the end goal that everyone wanted—to make it easier for employees, especially during the pandemic, to find a new job.”

Other labor and employment attorneys were split on how the bill will affect Chicago companies.

Gregory Abrams, a partner at Faegre Drinker Biddle & Reath, said the bill mirrors a national trend of lawmakers trying to limit noncompetes. The changes, particularly the attorneys’ fees provisions, increases the risk of trying to enforce a noncompete in court. 

“Employers no doubt are going to have to be more careful, and there’s going to be more uncertainty with new legislation like this,” he said. “As far as the underlying reasons why employers have noncompete agreements in the first place, this would cut against that.”

Matthew Prewitt, a partner at Schiff Hardin, emphasized the positives of the law. He said employers should be grateful that lawmakers codified a common set of standards and said it would be helpful if the FTC does the same since many cases involve parties in different states.

“What I need as a lawyer is some certainty about the rules that I’m dealing with and some predictability so it’s a welcome thing for me to be able to advise clients with the benefit of a statue that sets some uniformity going forward,” he said.

For Patrick Dolan, founding partner of Siegel & Dolan, the bill isn’t expansive enough. He said only the most senior executives possess the kind of knowledge that should worry companies, and even then, other laws already protect confidential, trademark and proprietary information. 

Employees often don’t realize they signed noncompetes that could affect future job opportunities and then receive threatening cease and desist letters.

Dolan said noncompetes “are still used to dissuade employees from going to other companies when companies do not have a legitimate business interest that needs to be protected. We see it at this firm all the time. We’re constantly fighting it.”

This story has been corrected to reflect that the threshold for noncompetes would increase beginning in 2027, not 2032.

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