Can an employee working for an Illinois company bust their non-compete by resigning after 1 year and 364 days of employment?
The new year brought with it an attempt by the State of Illinois to resolve that question with a statute. Illinois’ statute on restrictive covenants, the Illinois Freedom to Work Act (the “Act”), previously applied only to “low-wage employees,” meaning hourly employees who earned $13 per hour or less. In other words, Illinois left it to the courts to define the requirements for non-low wage employees. As of January 1, 2022, however, the Act has been significantly amended and now applies to all employees, not just “low-wage” employees.
This blog post focuses on one of the numerous significantly amended portions of the Act: The statutory requirement of “adequate consideration” in order to enforce a non-compete or non-solicit clause. Those of you who frequently deal with restrictive covenants know that the question of consideration is one of the first things that comes up in any legal dispute.
As of January 1, 2022, in Illinois, adequate consideration for a non-compete or non-solicit means either of the following:
(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 or
(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.
Answering the question that began this blog post: It would seem that the answer is . . . “Maybe.” In other words, if an employer does not provide additional consideration beyond at-will employment, an employee working for an Illinois company can potentially bust their non-compete by resigning after 1 year and 364 days of employment.
By creating two options for adequate consideration, the Act as amended appears to be trying to reconcile the uncertainty long faced by Illinois employers. That uncertainty came from potentially conflicting court decisions. In line with prong (1), numerous Illinois state appellate courts had strictly required at least two years of continued employment to constitute adequate consideration in support of a restrictive covenant — regardless of whether the employee resigned. However, in line with prong (2), other Illinois state appellate courts considered whether additional consideration, above and beyond mere at-will employment, was provided to the employee in consideration — such as money. Federal courts in Illinois, in particular, engaged in an analysis of whether other consideration was provided, and often noted the lack of guidance on this issue from the Illinois Supreme Court.
It seems that the two-pronged approach to adequate consideration is an attempt to unite the prior divergent rulings in courts within Illinois.
Employers should be aware of some of the other new significant statutory prohibitions in the amended Act:
