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BUSINESS Insights Sponsored by Drost Kivlahan McMahon & 0'Connor, LLC. Drost Kivlahan McMahon & O'Connor KATE M. LISTON RYAN B. EVANS Updates to Illinois Restrictive Covenant Law In 2021, the Ilinois legislature proposed some important changes to the laws regulating non-competition and non-solicitation agreements. This may have an impact on you or your business's hiring and employment practices. The proposed legislation attempted to balance protecting the legitimate business needs of employers and the needs and abilities of individuals trying to find gainful employment. On August 13, 2021, Illinois amended the Ilinois Freedom to Work Act (the "Act") to limit the enforceability of non-competition and non-solicitation agreements between employers and employees. The Act took effect on January 1, 2022. DROST KIVLAHAN MCMAHON & O'CONNOR A law firm focused on lasting relationships A "non-competition" agreement restricts an employee from performing work for another employer that performs similar work or provides similar services to the employee's current employer, for a specified period of time, within a specific geographical area. A "non-solicitation" agreement restriets an employee from soliciting other employees of the employer for future employment or restricts an employee from soliciting or interfering with the employer's clients, prospective clients, suppliers, and other business contacts. Oftentimes the two types of agreements are presented together in one agreement and can generally be referred to as "restrictive covenants." DK M&O Daly Herald 2020 Under the Act, a non-competition agreement is not enforceable unless an employee's actual or expected earnings exceed $75,000 per year, which increases by $5,000 every five years through 2037. A non-solicitation agreement is not enforceable unless an employee's actual or expected earnings exceed $45,000 per year, which increases by $2,500 every five years through 2037. * Readers Choice + The Act also codified much of the Ilinois case law that courts have relied on in their rulings for restrictive covenant litigation, The Act makes a non-competition or a non-solicitation agreement unenforceable unless: TOP PICK ATTORNEYS 1. The employee receives "adequate consideration" for agreeing to the non-competition or non- solicitation agreement. Courts have ruled that adequate consideration can be as simple as providing extra paid vacation days or other financial benefits, or continuous employment by the employer for at least two years following the employee's consent to be bound by the restrictive covenant agreement: 2. The covenant is ancillary to a valid employment relationship: Corporate Law Estate Planning Elder Law 3. The covenant is no greater than is required for the protection of a legitimate business interest of the employer; Probate & Trust Administration Employment Law 4. The covenant does not impose an undue hardship on the employee; and Healthcare Law Residential & Commercial Real Estate 5. The covenant is not injurious to the public. Further, for a court to enforce a non-competition or non-solicitation agreement, the employer must advise the employee in writing to consult an attorney before entering into the agreement and provide the employee with at least 14 calendar days to review the agreement, though the employee may waive this period in writing and sign before the 14 days expire. Residential Real Estate Tax Appeals Also, the Act provides that courts have the authority to revise or remove provisions from a non-competition or non-solicitation agreement to make the agreement reasonable under the law, Finally, if an employee prevails on a claim filed by the employer to enforce a non-competition and/or non-solicitation agreement, the employer is required to reimburse the employee for all costs and reasonable attorneys' fees associated with the claim. Moving forward, if you are an employee with an employment agreement or your business provides employment agreements to its employees, you will want to ensure that any employment or restrictive covenant agreements 11 S. Dunton Ave. Arlington Heights, IL 60005 (847)577-2227 www.dkmolaw.com comply with the Act. BUSINESS Insights Sponsored by Drost Kivlahan McMahon & 0'Connor, LLC. Drost Kivlahan McMahon & O'Connor KATE M. LISTON RYAN B. EVANS Updates to Illinois Restrictive Covenant Law In 2021, the Ilinois legislature proposed some important changes to the laws regulating non-competition and non-solicitation agreements. This may have an impact on you or your business's hiring and employment practices. The proposed legislation attempted to balance protecting the legitimate business needs of employers and the needs and abilities of individuals trying to find gainful employment. On August 13, 2021, Illinois amended the Ilinois Freedom to Work Act (the "Act") to limit the enforceability of non-competition and non-solicitation agreements between employers and employees. The Act took effect on January 1, 2022. DROST KIVLAHAN MCMAHON & O'CONNOR A law firm focused on lasting relationships A "non-competition" agreement restricts an employee from performing work for another employer that performs similar work or provides similar services to the employee's current employer, for a specified period of time, within a specific geographical area. A "non-solicitation" agreement restriets an employee from soliciting other employees of the employer for future employment or restricts an employee from soliciting or interfering with the employer's clients, prospective clients, suppliers, and other business contacts. Oftentimes the two types of agreements are presented together in one agreement and can generally be referred to as "restrictive covenants." DK M&O Daly Herald 2020 Under the Act, a non-competition agreement is not enforceable unless an employee's actual or expected earnings exceed $75,000 per year, which increases by $5,000 every five years through 2037. A non-solicitation agreement is not enforceable unless an employee's actual or expected earnings exceed $45,000 per year, which increases by $2,500 every five years through 2037. * Readers Choice + The Act also codified much of the Ilinois case law that courts have relied on in their rulings for restrictive covenant litigation, The Act makes a non-competition or a non-solicitation agreement unenforceable unless: TOP PICK ATTORNEYS 1. The employee receives "adequate consideration" for agreeing to the non-competition or non- solicitation agreement. Courts have ruled that adequate consideration can be as simple as providing extra paid vacation days or other financial benefits, or continuous employment by the employer for at least two years following the employee's consent to be bound by the restrictive covenant agreement: 2. The covenant is ancillary to a valid employment relationship: Corporate Law Estate Planning Elder Law 3. The covenant is no greater than is required for the protection of a legitimate business interest of the employer; Probate & Trust Administration Employment Law 4. The covenant does not impose an undue hardship on the employee; and Healthcare Law Residential & Commercial Real Estate 5. The covenant is not injurious to the public. Further, for a court to enforce a non-competition or non-solicitation agreement, the employer must advise the employee in writing to consult an attorney before entering into the agreement and provide the employee with at least 14 calendar days to review the agreement, though the employee may waive this period in writing and sign before the 14 days expire. Residential Real Estate Tax Appeals Also, the Act provides that courts have the authority to revise or remove provisions from a non-competition or non-solicitation agreement to make the agreement reasonable under the law, Finally, if an employee prevails on a claim filed by the employer to enforce a non-competition and/or non-solicitation agreement, the employer is required to reimburse the employee for all costs and reasonable attorneys' fees associated with the claim. Moving forward, if you are an employee with an employment agreement or your business provides employment agreements to its employees, you will want to ensure that any employment or restrictive covenant agreements 11 S. Dunton Ave. Arlington Heights, IL 60005 (847)577-2227 www.dkmolaw.com comply with the Act.