On April 23, 2024, the Federal Trade Commission (FTC) published its final rule regarding non-compete clauses. The final rule bans most non-compete clauses between employers and their workers. The effective date of the final rule is September 4, 2024. The final rule allows employers to maintain existing non-compete agreements with “senior executives” (those who make over $151,164 annual compensation and have policy making authority). The rule prohibits entering into non-compete agreements with senior executives after the rule takes effect.

Employers must also put employees on notice that the employee’s non-compete will not be enforced. Numerous associations and businesses across the country have challenged the final rule, seeking injunctions to stop the implementation of the new rule. The ban covers non-competes with limited exceptions.

In addition to the FTC rule, Illinois companies need to be aware of the Illinois Freedom to Work Act (IFTWA), which has been in effect since 2022. For covenants not to compete covered by the IFTWA, the statute specifically states that an employer shall not enter into a covenant not to compete with an 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 on January 1, 2027, $85,000 per year on January 1, 2032, and $90,000 per year on January 1, 2037 and that a covenant not to compete entered into in violation of the subsection is void and unenforceable.

The IFTWA also states that 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 will increase to $47,500 per year beginning January 1, 2027, $50,000 per year beginning January 1, 2032, and $52,500 per year beginning January 1, 2037. A covenant not to solicit entered into in violation of this subsection is void and unenforceable.

Additionally, the IFTWA states that no employees shall enter into a covenant not to compete or covenant not to solicit with any employee who an employer terminates or furloughs or lays off as the result of business circumstances or governmental orders related to the COVID-19 pandemic or under circumstances that are similar to the COVID-19 pandemic, unless enforcement of the covenant not to compete includes compensation equivalent to the employee’s base salary at the time of termination for the period of enforcement minus compensation earned through subsequent employment during the period of enforcement. A covenant not to compete or a covenant not to solicit entered into in violation of this subsection is void and unenforceable.

The IFTWA also states that a covenant not to compete is void and illegal with respect to individuals covered by a collective bargaining agreement under the Illinois Public Labor Relations Act or the Illinois Educational Labor Relations Act and individuals employed in construction. However, this does not apply to construction employees who primarily perform management, engineering or architectural, design, or sales functions for the employer or who are shareholders, partners, or owners in any capacity of the employer.

Illinois employers should take notice of the IFTWA because, in addition to any remedies available under any agreement between an employer and an employee or under any statute, in a civil action or arbitration filed by an employer, 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 reasonable attorneys’ fees from the employer.

This area of the law is constantly changing. If you would like information about covenants not to compete/solicit or would like to know if your covenants are enforceable, please call any of our offices for help.