103RD GENERAL ASSEMBLY
State of Illinois
2023 and 2024
HB5385

 

Introduced 2/9/2024, by Rep. Anna Moeller

 

SYNOPSIS AS INTRODUCED:
 
820 ILCS 90/5
820 ILCS 90/10
820 ILCS 90/15
820 ILCS 90/17 new
820 ILCS 90/7 rep.
820 ILCS 90/20 rep.
820 ILCS 90/35 rep.

    Amends the Illinois Freedom to Work Act. Provides that no employer shall enter into a covenant not to compete or a covenant not to solicit with any employee (rather than no employer shall enter into a covenant not to compete or a covenant not to solicit with any employee unless the employee's actual or expected annualized rate of earnings exceeds $75,000 per year). Provides that an employer or former employer shall not attempt to enforce a contract that is void and unenforceable under the Act regardless of whether the contract was signed and the employment was maintained outside of the State. Provides that, on or before April 1, 2025, an employer who entered into a covenant not to compete or a covenant not to solicit with an employee, or a former employees who was employed after January 1, 2023, shall notify the employee or the former employee that the covenant not to compete or the covenant not to solicit is void and unenforceable. Repeals provisions concerning the legitimate business interest of the employer; ensuring employees are informed about their obligations; and reformation of covenants not to compete and covenants not to solicit. Makes changes to definitions. Makes conforming changes.


LRB103 35450 SPS 65519 b

 

 

A BILL FOR

 

HB5385LRB103 35450 SPS 65519 b

1    AN ACT concerning employment.
 
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
 
4    Section 5. The Illinois Freedom to Work Act is amended by
5changing Sections 5, 10, and 15 and by adding Section 17 as
6follows:
 
7    (820 ILCS 90/5)
8    Sec. 5. Definitions. In this Act:
9    "Adequate consideration" means (1) the employee worked for
10the employer for at least 2 years after the employee signed an
11agreement containing a covenant not to compete or a covenant
12not to solicit or (2) the employer otherwise provided
13consideration adequate to support an agreement to not compete
14or to not solicit, which consideration can consist of a period
15of employment plus additional professional or financial
16benefits or merely professional or financial benefits adequate
17by themselves.
18    "Covenant not to compete" means an agreement between an
19employer and an employee that is entered into after the
20effective date of this amendatory Act of the 102nd General
21Assembly that restricts the employee from performing:
22            (1) any work for another employer for a specified
23        period of time;

 

 

HB5385- 2 -LRB103 35450 SPS 65519 b

1            (2) any work in a specified geographical area; or
2            (3) work for another employer that is similar to
3        employee's work for the employer included as a party
4        to the agreement.
5    "Covenant not to compete" also means an agreement between
6an employer and an employee, entered into after the effective
7date of this amendatory Act of the 102nd General Assembly,
8that by its terms imposes adverse financial consequences on
9the former employee if the employee engages in competitive
10activities after the termination of the employee's employment
11with the employer.
12    "Covenant not to compete" does not include (1) a covenant
13not to solicit, (2) a confidentiality agreement or covenant,
14(3) a covenant or agreement prohibiting use or disclosure of
15trade secrets or inventions, (4) invention assignment
16agreements or covenants, (5) a covenant or agreement entered
17into by a person purchasing or selling the goodwill of a
18business or otherwise acquiring or disposing of an ownership
19interest, (6) clauses or an agreement between an employer and
20an employee requiring advance notice of termination of
21employment, during which notice period the employee remains
22employed by the employer and receives compensation, or (7)
23agreements by which the employee agrees not to reapply for
24employment to the same employer after termination of the
25employee.
26    "Covenant not to solicit" means an agreement that is

 

 

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1entered into after the effective date of this amendatory Act
2of the 102nd General Assembly between an employer and an
3employee that (1) restricts the employee from soliciting for
4employment the employer's employees or (2) restricts the
5employee from soliciting, for the purpose of selling products
6or services of any kind to, or from interfering with the
7employer's relationships with, the employer's clients,
8prospective clients, vendors, prospective vendors, suppliers,
9prospective suppliers, or other business relationships.
10    "Earnings" means the compensation, including earned
11salary, earned bonuses, earned commissions, or any other form
12of taxable compensation, reflected or that is expected to be
13reflected as wages, tips, and other compensation on the
14employee's IRS Form W-2 plus any elective deferrals not
15reflected as wages, tips, and other compensation on the
16employee's IRS Form W-2, such as, without limitation, employee
17contributions to a 401(k) plan, a 403(b) plan, a flexible
18spending account, or a health savings account, or commuter
19benefit-related deductions.
20    "Employee" means any individual permitted to work by an
21employer in an occupation.
22    "Employer" has the meaning given to such term in
23subsection (c) of Section 3 of the Minimum Wage Law.
24"Employer" does not include governmental or quasi-governmental
25bodies.
26    "Construction" means any constructing, altering,

 

 

HB5385- 4 -LRB103 35450 SPS 65519 b

1reconstructing, repairing, rehabilitating, refinishing,
2refurbishing, remodeling, remediating, renovating, custom
3fabricating, maintenance, landscaping, improving, wrecking,
4painting, decorating, demolishing, and adding to or
5subtracting from any building, structure, highway, roadway,
6street, bridge, alley, sewer, ditch, sewage disposal plant,
7water works, parking facility, railroad, excavation or other
8structure, project, development, real property or improvement,
9or to do any part thereof, whether or not the performance of
10the work herein described involves the addition to, or
11fabrication into, any structure, project, development, real
12property or improvement herein described of any material or
13article of merchandise.
14(Source: P.A. 102-358, eff. 1-1-22.)
 
15    (820 ILCS 90/10)
16    Sec. 10. Prohibiting covenants not to compete and
17covenants not to solicit.
18    (a) No employer shall enter into a covenant not to compete
19with any employee unless the employee's actual or expected
20annualized rate of earnings exceeds $75,000 per year. This
21amount shall increase to $80,000 per year beginning on January
221, 2027, $85,000 per year beginning on January 1, 2032, and
23$90,000 per year beginning on January 1, 2037. A covenant not
24to compete entered into in violation of this subsection is
25void and unenforceable.

 

 

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1    (b) No employer shall enter into a covenant not to solicit
2with any employee unless the employee's actual or expected
3annualized rate of earnings exceeds $45,000 per year. This
4amount shall increase to $47,500 per year beginning on January
51, 2027, $50,000 per year beginning on January 1, 2032, and
6$52,500 per year beginning on January 1, 2037. A covenant not
7to solicit entered into in violation of this subsection is
8void and unenforceable.
9    (c) (Blank). No employer shall enter into a covenant not
10to compete or a covenant not to solicit with any employee who
11an employer terminates or furloughs or lays off as the result
12of business circumstances or governmental orders related to
13the COVID-19 pandemic or under circumstances that are similar
14to the COVID-19 pandemic, unless enforcement of the covenant
15not to compete includes compensation equivalent to the
16employee's base salary at the time of termination for the
17period of enforcement minus compensation earned through
18subsequent employment during the period of enforcement. A
19covenant not to compete or a covenant not to solicit entered
20into in violation of this subsection is void and
21unenforceable.
22    (d) A covenant not to compete is void and illegal with
23respect to individuals covered by a collective bargaining
24agreement under the Illinois Public Labor Relations Act or the
25Illinois Educational Labor Relations Act and individuals
26employed in construction. This subsection (d) does not apply

 

 

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1to construction employees who primarily perform management,
2engineering or architectural, design, or sales functions for
3the employer or who are shareholders, partners, or owners in
4any capacity of the employer.
5(Source: P.A. 102-358, eff. 1-1-22.)
 
6    (820 ILCS 90/15)
7    Sec. 15. Enforceability of a covenant not to compete or a
8covenant not to solicit.
9    (a) A covenant not to compete or a covenant not to solicit
10is illegal and void regardless of where and when the covenant
11not to compete or a covenant not to solicit was entered into
12unless (1) the employee receives adequate consideration, (2)
13the covenant is ancillary to a valid employment relationship,
14(3) the covenant is no greater than is required for the
15protection of a legitimate business interest of the employer,
16(4) the covenant does not impose undue hardship on the
17employee, and (5) the covenant is not injurious to the public.
18    (b) An employer or former employer shall not attempt to
19enforce a contract that is void and unenforceable under this
20Act regardless of whether the contract was signed and the
21employment was maintained outside of this State.
22(Source: P.A. 102-358, eff. 1-1-22.)
 
23    (820 ILCS 90/17 new)
24    Sec. 17. Notice to employees and former employees. On or

 

 

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1before April 1, 2025, an employer who entered into a covenant
2not to compete or a covenant not to solicit with an employee,
3or a former employees who was employed after January 1 2023,
4shall notify the employee or the former employee that the
5covenant not to compete or the covenant not to solicit is void
6and unenforceable. Notice made under this subsection shall be
7in the form of a written individualized communication to the
8employee or former employee and shall be delivered to the last
9known address and the email address of the employee or former
10employee.
 
11    (820 ILCS 90/7 rep.)
12    (820 ILCS 90/20 rep.)
13    (820 ILCS 90/35 rep.)
14    Section 10. The Illinois Freedom to Work Act is amended by
15repealing Sections 7, 20, and 35.