In 2021, two significant events took place that impact Illinois businesses and involve non-compete agreements: Illinois passed a new law that reforms non-compete litigation in the form of amendments to the Freedom to Work Act, and President Biden signed an Executive Order aimed at restricting the use of non-compete agreements.
The New Illinois Law
The new Illinois law applies to all agreements that an employee will sign after January 1, 2022. As a result of the law, businesses will need to revise their existing non-compete and non-solicitation agreements to help ensure that courts will enforce them. These are the main modifications that businesses will have to make:
- Companies will need to provide some specific benefit (or additional monetary “consideration”) in exchange for an employee signing these agreements.
- Companies will also have to provide employees with 14 days’ notice of their non-compete and non-solicit agreements, and should consider revising the remedies in these agreements.
- Companies will have to take into account that the law bans non-compete and non-solicit agreements for several categories of workers. Otherwise, the Illinois Attorney General’s office could initiate its own investigations into company behavior.
The Executive Order
There are also new developments on the non-compete front as a result of President Biden’s Executive Order from July. That Order encourages the Federal Trade Commission “to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”
The FTC and the Department of Justice announced that they would “jointly host a virtual public workshop on December 6 and 7, 2021 to discuss efforts to promote competitive labor markets and worker mobility.” In addition to numerous other topics, the FTC and DOJ will discuss “the increased use of restrictive contractual clauses in labor agreements, including non-competes and non-disclosure agreements.”
The two-day virtual workshop will continue the national dialogue to promote fair competition, and likely will encourage state and local action. But it remains unclear (1) whether the FTC will pass new rules regarding non-compete or non-solicit agreements; (2) what, if any, legal authority the FTC has to promulgate rules to restrict the use of non-compete agreements; and (3) if the FTC creates new rules, when it will do so.
We will continue monitoring developments at the federal level to determine if the FTC will develop new guidelines regarding non-compete agreements. In the meantime, Illinois employers should review and modify their existing agreements prior to the start of the new year to ensure that they comply with the new state law.