The Illinois Freedom to Work Act – Anticipated Amendments

Author: Jason Hirsh

Non-competes and non-solicits, so-called restrictive covenants, have been at the center of a nationwide discussion for many years. On the one hand, employee-leaning constituencies have advocated for substantial restrictions and/or outlawing restrictive covenants.  Employer groups, on the other hand, have argued that restrictive covenants are necessary to protect important business interests, such as mitigating the risk of unfair competition.  The debate has raged on for years now, and many states have enacted legislation regulating restrictive covenants.    

Illinois is now jumping back into the fray, with the General Assembly passing an amendment to The Illinois Freedom to Work Act (the “Amended Act”).  Should Governor Pritzker sign the Amended Act into law, which is expected, the Amended Act will usher in a new era of restrictive covenant regulation effective January 1, 2022. 

Employers should consider this anticipated change to Illinois law.  Below is a discussion of key points.

Prospective Application

The Amended Act addresses the use of non-competes and non-solicits, both of which are defined in the proposed legislation. Critically, both categories are limited to those “entered into after the effective date of this Amendatory Act of the 102nd General Assembly.” This means the Amended Act will apply prospectively and its application will be limited to employment agreements signed after January 1, 2022.

Salary Thresholds

Throughout the nation, there is a growing view that lower-paid employees should not be saddled with the burden of post-employment restrictive covenants.  The Amended Act joins this movement by prohibiting non-competes, initially, with respect to any employee not earning more than $75,000 and prohibiting non-solicits, initially, with respect to any employee not earning more than $45,000.  These thresholds will increase every five years until 2037:

(a) 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. This amount shall increase to $80,000 per year beginning on January 1, 2027, $85,000 per year beginning on January 1, 2032, and $90,000 per year beginning on January 1, 2037. A covenant not to compete entered into in violation of this subsection is void and unenforceable. No employer shall enter into a covenant not to compete with any low-wage employee of the employer.

(b) No employer shall enter into a covenant not to solicit with any employee unless the employee’s actual or expected annualized rate of earnings exceeds $45,000 per year. This amount shall increase to $47,500 per year beginning on January 1, 2027, $50,000 per year beginning on January 1, 2032, and $52,500 per year beginning on January 1, 2037. A covenant not to solicit entered into in violation of this subsection is void and unenforceable. A covenant not to compete entered into between an employer and a low-wage employee is illegal and void

Presumably, the Amended Act would be amended before or around 2037 to implement further adjustments to the compensation thresholds.

Defining Adequate Consideration

Illinois law has traditionally required “adequate consideration” to support enforcement of a non-compete or non-solicit covenant. Since Fifield v. Premier Dealer Services, Inc. was decided in 2013, there has been an active controversy over what actually constitutes “adequate consideration.”  In Fifield, the First District determined that in the absence of other consideration, continued employment was adequate consideration only if the employee was employed for two full years following execution of the agreement containing the restrictive covenant at issue. That ruling was adopted by other courts in Illinois.  But the federal courts largely rejected Fifield, believing that the Illinois Supreme Court would not, if provided an opportunity, adopt the Fifield rule.     

The Amended Act resolves this disagreement by codifying the Fifield rule: “‘[a]dequate consideration’ means (1) the employee worked for the employer for at least 2 years after the employee signed an agreement containing a covenant not to compete or a covenant not to solicit …”

The Amended Act does not, however, limit “adequate consideration” to continued employment, but encompasses other undefined professional or financial benefits – “‘[a]dequate consideration’ means … (2) the employer otherwise provided consideration adequate to support an agreement to not compete or to not solicit, which consideration can consist of a period of employment plus additional professional or financial benefits or merely professional or financial benefits adequate by themselves.” 

The contours of this other consideration are nebulous at best. Nevertheless, if past legal disputes are predictive, other benefits are likely to include cash payments, special training, etc.  What will no doubt be important is that the operative employment agreement is drafted to specifically describe other benefits as part of the employee’s consideration package so the employment agreement clearly reflects that the other benefits are given in return for the restrictive covenant.     

Advising Employees

Employees often sign an employment agreement in the days leading up to employment or on the employee’s first day of employment.  Employers beware: if the Amended Act is signed into law, employers must advise employees in writing to consult with an attorney before agreeing to a non-compete or non-solicit restrictive covenant and provide employees 14 days to review the covenant.  Absent compliance, the covenant is “illegal and void”: 

Ensuring employees are informed about their obligations. A covenant not to compete or a covenant not to solicit is illegal and void unless (1) the employer advises the employee in writing to consult with an attorney before entering into the covenant and (2) the employer provides the employee with a copy of the covenant at least 14 calendar days before the commencement of the employee’s employment or the employer provides the employee with at least 14 calendar days to review the covenant. An employer is in compliance with this Section even if the employee voluntarily elects to sign the covenant before the expiration of the 14-day period.

Employee Remedy

In the past, employers who pursued and lost lawsuits seeking to enforce restrictive covenants typically had no risk of paying the employee’s legal fees. Employers wisely did not draft employment agreements to provide an employee with such a right. The Amended Act changes the landscape, giving employees the statutory right to recover attorney’s fees if the employee “prevails” in a lawsuit seeking to enforce a non-compete or non-solicit: 

Sec. 25. Remedies. In addition to any remedies available under any agreement between an employer and an employee or under any other statute, in a civil action or arbitration filed by an employer (including, but not limited to, a complaint or counterclaim), if an employee prevails on a claim to enforce a covenant not to compete or a covenant not to solicit, the employee shall recover from the employer all costs and all reasonable attorney’s fees regarding such claim to enforce a covenant not to compete or a covenant not to solicit, and the court or arbitrator may award appropriate relief.

In the Amended Act, the Illinois General Assembly empowers the Attorney General to investigate and take action against employers that violate Amended Act:

Sec. 30. Attorney General enforcement. (a) Whenever the Attorney General has reasonable cause to believe that any person or entity is engaged in a pattern and practice prohibited by this Act, the Attorney General may initiate or intervene in a civil action in the name of the People of the State in any appropriate court to obtain appropriate relief.

This is a fairly significant change, requiring reconsideration of aggressive drafting and enforcement of non-competes and non-solicits. 

The Labor & Employment and Litigation Groups at Levenfeld Pearlstein will continue to monitor any developments on the amendments to the Illinois Freedom to Work Act. If you have any specific questions about the Act or its amendments, please do not hesitate to reach out.

This document is not intended to, nor shall it be considered legal advice. If you have any questions regarding your legal rights, you should address the specific matter with your attorney.

Cook County Employers Must Now Provide Paid Sick Leave

buildingCook County has now joined the City of Chicago by passing a paid sick leave ordinance.  The Cook County Earned Sick Leave Ordinance, passed on October 5th, mandates that covered employers in Cook County, Illinois, allow eligible employees to accrue one hour of paid sick leave for every 40 hours worked, up to 40 hours of paid sick leave in each 12-month period of their employment. The Ordinance becomes effective on July 1, 2017, although, as noted below, suburbs have the ability to opt out of the ordinance and some may elect to do so.

Coverage

Individuals are entitled to benefits under the Ordinance if they:

  1. perform at least two hours of work for a covered employer while physically present within the geographic boundaries of the County in any particular two-week period; and
  2. work at least 80 hours for a covered employer in any 120-day period.

Covered employers are those with a place of business within Cook County that gainfully employ at least one covered employee. The Ordinance does not apply to collective bargaining agreements in force on July 1, 2017.

Use

Employees can use paid sick leave:

  1. for their own illness, injuries, or medical care (including preventive care);
  2. for the illness, injuries, or medical care of certain covered family members;
  3. if the employee or a family member is a victim of domestic violence or a sex offense; or
  4. if their place of business or the child care facility or school of their child has been closed by an order of a public official due to a public health emergency.

Carry Over, Restrictions on Use, Notice, Termination

Under the Ordinance, employees may carry over half of their unused paid sick leave (up to 20 hours) to the next 12-month period.

Covered employers are permitted to set reasonable minimum increments for the use of paid sick leave, not to exceed four hours a day.

Employers may require that employees provide up to seven days advance notice if the need for paid sick leave is foreseeable. If the need for leave is unforeseeable, employees must provide as much notice as is practical. The Ordinance states that employees may notify their employers of the need for leave by phone, email, or text message.

The Ordinance further provides that unused, accrued sick leave does not need to be paid out upon termination or separation of employment.

Existing Policy

If a covered employer has a policy that allows employees paid time off in an amount and a manner that meets the requirements of the new Ordinance, the employer is not required to provide any additional paid leave.

Suggested Action

Employers with operations in Cook County should review the specifics of the Ordinance and ensure compliance. At the same time, employers should also keep an eye out for paid sick leave-related resolutions in the particular suburb in which they operate. According to an opinion by the Cook County State’s Attorney’s office, suburbs may opt out of the requirements of the Cook County Ordinance, and many suburbs are already in the process of passing resolutions that will exempt their local businesses.

Illinois Passes Two New Leave Laws

pillarsIllinois employers should be aware of two new leave-related laws.

First, the Child Bereavement Leave Act, which took effect on July 29, mandates that Illinois employers with at least 50 employees provide employees who suffered the loss of a child with up to two weeks (10 work days) of unpaid leave. Leave can be taken to attend the funeral, make arrangements necessitated by the death of the child, or to grieve the death. If an employee has already used all of his or her 12 weeks of available FMLA leave, the employer does not need to provide the additional 10 days for reasons related to the death of a child. Employees may elect to substitute available paid leave, but employers may not require them to do so.

Second, the Employee Sick Leave Act, which takes effect on January 1, 2017, provides greater flexibility to family caregivers. The Act requires Illinois employers who provide employees with paid sick leave to allow their employees to use that time to care for the employee’s immediate family members, parents-in-law, grandchildren, or grandparents. Employers must allow employees to use sick leave for caregiving just as they do for their own illness or injury, though employers may cap the amount of sick leave to be used for caregiving responsibilities at what the employee would have earned during 6 months. The Act does not extend the maximum period of leave under the FMLA, regardless of whether the employee receives sick leave compensation during that leave.

Illinois employers should review bereavement and sick leave policies to make sure that they are compliant with this new legislation.

Illinois Bars Non-Competes For Low-Wage Employees; New York Similarly Critical

signing-contractUnder the new Illinois Freedom to Work Act, Illinois employers cannot impose non-compete agreements on “low wage employees.”  The Act comes in response to growing concerns and lawsuits over non-compete agreements imposed on employees by certain fast-food companies. Effective January 1, 2017, the Act defines a “low wage employee” as any employee who earns the greater of (1) the hourly minimum wage under federal (currently $7.25 per hour), state (currently $8.25 per hour) or local law (currently $10.50 per hour in Chicago) or (2) $13.00 per hour. The Act defines a non-compete agreement as an agreement between an employer and a “low-wage employee” that restricts such low-wage employee from performing:

  • any work for another employer for a specific period of time;
  • any work in a specified geographical area; or
  • work for another employer that is similar to such low-wage employee’s work for the employer included as a party to the agreement. 

The Act does not specifically ban non-solicitation agreements with low-wage employees, in which the employee promises not to solicit employer customers or employees. This will likely be answered in future litigation … stay tuned.

Similarly, the New York Attorney General has been extremely critical of non-competes for low-wage employees, and has publicly announced various monetary settlements with employers who required low-level employees to sign non-competes as a condition of employment. Employers with New York operations should be very wary of requiring low-wage workers to sign such agreements, and are encouraged to consult counsel before doing so.

 

 

 

 

 

 

 

 

 

2015 Check-In – Have you updated your policies and documents?

Echeckarlier this year, we posted a checklist outlining key issues and action items for compliance in 2015. With the first quarter coming to a close, we want to remind you of a few important items from that checklist that required changes to your policies and practices, as well as alert you to a new item that requires immediate action.

Change FMLA policy to reflect same-sex spouses.

Effective March 27, 2015, the definition of “spouse” under the FMLA will be amended so that an eligible employee in a legal same-sex marriage will be allowed to take FMLA leave for his or her spouse. Make sure that you change your FMLA policies and practices to reflect this new definition.

Confirm employment applications and processes comply with “Ban the Box.”

As of the first of this year, Illinois employers must wait until an interview has been granted (or, if no interview, until a conditional offer of employment has been made) before asking about criminal history. New Jersey’s new law, effective earlier this month, requires companies to wait even longer. Employers hiring in these states — as well as in other states with similar laws — should ensure that employment applications do not contain criminal background questions and that questions regarding criminal background are not asked until it’s legal to do so.

Comply with new Illinois pregnancy accommodation rules and notice requirements.

As of January 1st, Employers in Illinois are required to provide reasonable accommodations to pregnant employees and applicants who ask for them, to post a notice in the workplace regarding pregnancy accommodation rights, and to include language relating to such rights in their handbooks. Make sure your team is aware of these requirements and that any necessary changes to policies and practices have been made.

Webinar- Back to School: Employment Law Update

school-suppliesAs fall approaches and students head back to school, The Employment Lawyers are taking a look back and a look ahead at issues in labor and employment law. Join us for an informational webinar to review developments over the past year and discuss tips to keep your workplace practices current in the coming year.

Tuesday, September 9, 2014
12:00 pm – 1:30 pm (CDT)
CLICK HERE TO REGISTER

TOPICS

• Supreme Court developments, including the important decisions in Noel Canning and Hobby Lobby
• The EEOC’s new challenges to release agreements and steps you should take to ensure enforceability
• What Illinois and New Jersey employers need to know about new laws limiting questions about an applicant’s criminal record
• Developments under the Americans with Disabilities Act, including working at a home as a reasonable accommodation
• New guidance on how far employers need to go in accommodating religious beliefs and practices
• The Supreme Court and IRS weigh in on taxability of severance payments and health insurance reimbursements
• What to expect from the DOL’s fresh look at overtime requirements
• Continued rollout of the Affordable Care Act in the coming year
• Key changes to requirements for federal contractors

And more…

CLE Credit Available | This program has been submitted to the HR Certification Institute for review.

QUESTIONS

Contact Annie Darmofal at 312.476.7626 or adarmofal@lplegal.com

Illinois Joins Push to “Ban the Box”

btbEffective January 1, 2015, most Illinois employment agencies and private employers will be prohibited from asking about applicants’ criminal background until the applicant reaches the interview stage of the hiring process, or, if there is no interview, until the applicant has been given a conditional offer of employment.  The Job Opportunities for Qualified Applicants Act (House Bill 5701) provides very limited exceptions.  For most Illinois employers, the Act will require changes to the application process.

The Illinois Job Opportunities for Qualified Applicants Act is the latest in a surge of “Ban the Box” legislation around the country.   Illinois becomes the 5th state to enact such “Ban the Box” legislation that covers private employers, joining Hawaii, Massachusetts, Minnesota and Rhode Island.  Seven cities (Baltimore, Buffalo, Newark, Philadelphia, Rochester, Seattle, San Francisco) also have similar provisions.  

Illinois employers and employment agencies should review application materials to remove questions about criminal history by the end of the year.

Medical Marijuana Legalized in Illinois – Employers Beware

Illinois General AssemblyThis morning Illinois became the 20th state to legalize medical marijuana use, though use is allowed only in very limited circumstances as part of a 4-year trial program.  The law includes a number of provisions specifically relating to employment.

  • Employers can’t discriminate against a person solely for being a “registered qualifying patient” or a “registered qualifying caregiver” (unless federal law requires otherwise).
  • Employers could also face liability if they take action against an employee for using medical marijuana off premises and outside of working hours unless the employee was impaired at work.

The law doesn’t prohibit employers from adopting reasonable rules regarding the consumption and storage of medical marijuana, from enforcing drug testing, zero tolerance and drug free workplace policies (provided they are applied in a non-discriminatory manner), or from disciplining a “registered qualifying patient” for violating a workplace drug policy, but employers will need to take extra care in disciplining employees for violation of such policies.  The medical marijuana law takes effect on January 1, 2014.