Employee Non-Compete Agreement and Enforceability Memo — Illinois

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ILLINOIS Employee Non-Compete Agreement and Enforceability Memo

Quick-Reference Summary

PART A — ENFORCEABILITY MEMO

A.1 Statutory Framework

The Illinois Freedom to Work Act (IFWA), 820 ILCS 90/1 to 90/99, governs all post-employment covenants not to compete and covenants not to solicit entered into between an Illinois employer and an Illinois employee on or after January 1, 2022. The Act is not retroactive: covenants signed before January 1, 2022 are evaluated under prior Illinois common law (Reliable Fire, Cambridge Engineering, Fifield).

A.2 Threshold Eligibility — Income Floors (820 ILCS 90/10)

A non-compete is void and unenforceable if the employee's "actual or expected annualized rate of earnings" does not exceed:

"Earnings" includes W-2 taxable compensation plus elective deferrals (401(k)/403(b), HSA/FSA, cafeteria-plan contributions). 820 ILCS 90/5.

A.3 Mandatory Notice and 14-Day Review (820 ILCS 90/20)

Before requiring the employee to sign, the employer must:

1. Advise the employee in writing to consult with an attorney before entering into the covenant; AND
2. Provide the covenant to the employee at least 14 calendar days before (a) the employee begins employment, or (b) provide 14 calendar days to review the covenant.

The employee may sign before the 14 days lapse, but the offer must remain open for the full 14 days. Failure to comply renders the covenant "illegal and void." 820 ILCS 90/20.

A.4 Reasonableness — Reliable Fire Totality Test

A covenant not to compete is enforceable only if it (820 ILCS 90/15):

• Is ancillary to a valid employment relationship;
• Is supported by adequate consideration;
• Is no greater than required for the protection of a legitimate business interest of the employer;
• Does not impose undue hardship on the employee; and
• Is not injurious to the public.

Legitimate-business-interest factors (820 ILCS 90/35; Reliable Fire, 2011 IL 111871, ¶ 43):

• Near-permanence of customer relationships;
• Employee's acquisition, use, or knowledge of confidential information;
• Time, place, and scope restrictions;
• Industry norms; and
• Identifiability of customers.

No single factor is dispositive; the same restriction may be reasonable in one factual setting and unreasonable in another. 820 ILCS 90/7.

A.5 Consideration — Fifield Two-Year Rule

For at-will employees, continued employment alone is adequate consideration only if the employee remains employed for at least two years after signing. Fifield v. Premier Dealer Servs., Inc., 2013 IL App (1st) 120327; McInnis v. OAG Motorcycle Ventures, 2015 IL App (1st) 142644.

The two-year rule can be overcome by additional consideration such as:

Federal courts in Illinois have split on whether Fifield is binding; the Second and Third Appellate Districts have applied a more flexible totality test. Prudent practice: build in independent consideration.

A.6 Industry and Worker Carve-Outs (820 ILCS 90/10(d)–(f))

The IFWA does not apply to:

• Sale-of-business covenants and goodwill purchases;
• Confidentiality agreements;
• Trade-secret and invention-assignment agreements;
• Advance-notice-of-termination clauses (garden leave) where employee remains employed and paid;
• No-rehire clauses;
• Covenants in covered partnership/LLC/shareholder agreements among owners.

The IFWA prohibits non-competes for:

• Construction-industry employees (except those performing primarily management, engineering, architectural, design, or sales functions, or who are owners/partners/shareholders);
• Employees covered by a CBA under the Illinois Public Labor Relations Act or Illinois Educational Labor Relations Act;
• Employees terminated, furloughed, or laid off for COVID-19-related business circumstances unless the employer pays a make-whole equal to base salary minus subsequent earnings.

Industry-specific overlays:

• Lawyers: Illinois RPC 5.6 categorically prohibits non-competes restricting practice of law.
• Broadcasters: 820 ILCS 17/10(a) — special rules.
• Nurse-agency nurses and CNAs: 225 ILCS 510/14(g) — non-competes void.
• State contractors: 30 ILCS 500/50-25 — restrictions on barring state-contract bidding.

A.7 Choice of Law and Venue (820 ILCS 90/75)

A choice-of-law or venue provision designating a state other than Illinois is void and unenforceable against an employee who (a) is an Illinois resident and (b) primarily resides or works in Illinois, unless the employee was independently represented by counsel in negotiating the provision.

A.8 Remedies and Fee-Shifting

• Injunctive relief is the primary employer remedy and is available against an employee who breaches an enforceable covenant.
• Damages for breach (consequential and liquidated, if reasonable).
• One-way fee-shifting (820 ILCS 90/25): in any civil action or arbitration initiated by the employer (including counterclaims), a prevailing employee shall recover all costs and reasonable attorney's fees on the claim to enforce the covenant. There is no reciprocal fee recovery for the employer under the Act.
• AG enforcement (820 ILCS 90/30): civil penalties up to $5,000 per violation, $10,000 per repeat violation within five years, plus equitable relief and restitution.

A.9 Reformation / Blue-Pencil

Illinois courts may, in their discretion, judicially modify or "blue-pencil" overbroad covenants to make them reasonable. Cambridge Engineering, Inc. v. Mercury Partners 90 BI, Inc., 378 Ill. App. 3d 437 (1st Dist. 2007). However, reformation is discretionary, and courts have refused to reform covenants drafted in bad faith or so overbroad as to suggest in terrorem intent.

A.10 Recent Developments

• FTC Non-Compete Rule (2024): the FTC's nationwide non-compete ban was set aside in Ryan, LLC v. FTC (N.D. Tex. Aug. 20, 2024); appeal pending in the Fifth Circuit. Illinois law continues to govern.
• Illinois HB 2782 / SB 2417 (2025–2026 session): proposed amendments under review to extend IFWA to certain healthcare workers and to clarify garden-leave treatment. Monitor for enactment.
• Attorney General activity: the Illinois AG opened multiple IFWA investigations against staffing agencies and franchisors in 2024–2025.

PART B — NON-COMPETE AGREEMENT

B.1 Caption

Effective Date: [__/__/____]

B.2 Recitals

WHEREAS, the Company is engaged in [DESCRIBE BUSINESS] within Illinois and other jurisdictions and has invested substantial resources in developing confidential information, customer relationships, goodwill, and specialized training;

WHEREAS, in connection with [☐ Employee's initial employment / ☐ Employee's promotion to [POSITION] / ☐ a special bonus, equity grant, or severance commitment described below], the Company has agreed to provide Employee with access to confidential information, customer relationships, and specialized training;

WHEREAS, this Agreement is governed by the Illinois Freedom to Work Act, 820 ILCS 90/1 et seq., and the Company has provided Employee with the statutory written notice to consult with an attorney and at least fourteen (14) calendar days to review this Agreement before signing;

NOW, THEREFORE, in consideration of the mutual covenants below and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties agree as follows.

B.3 Definitions

"Business of the Company" means [DESCRIBE WITH SPECIFICITY — e.g., "the manufacture, marketing, and sale of [PRODUCT/SERVICE] to [CUSTOMER CLASS]"].

"Competing Business" means any person or entity that engages in the Business of the Company within the Restricted Territory.

"Confidential Information" means non-public information of the Company including [LIST: customer lists, pricing, formulas, source code, financial data, etc.].

"Customer" means any person or entity to which the Company sold, marketed, or provided products or services during the [12 / 18 / 24] months preceding Employee's termination.

"Restricted Period" means the period beginning on the date Employee's employment with the Company terminates (for any reason) and continuing for [6 / 12 / 18 / 24] months thereafter.

"Restricted Territory" means [DEFINE NARROWLY — e.g., "the counties of [LIST] in Illinois and any other county in which Employee performed services or had material customer contact during the last 24 months of employment"].

B.4 Acknowledgments and Statutory Notices

Employee acknowledges that:

(a) Advice of Counsel. The Company advised Employee, in writing, to consult with an attorney before entering into this Agreement. Employee has had the opportunity to do so. ☐ Employee consulted counsel ☐ Employee waived counsel after being advised.

(b) 14-Day Review. Employee received a copy of this Agreement on [__/__/____], which is at least fourteen (14) calendar days before [☐ Employee's start date / ☐ the date Employee was required to sign]. Employee may sign before the 14-day period expires if Employee does so voluntarily.

(c) Earnings Threshold. Employee's actual or expected annualized earnings as of the Effective Date are $[____________], which exceeds (i) $75,000 for non-compete purposes and (ii) $45,000 for non-solicitation purposes under 820 ILCS 90/10.

(d) Legitimate Business Interests. Employee will be exposed to Confidential Information and customer relationships that the Company has a legitimate business interest in protecting, and the restrictions in this Agreement are no greater than reasonably necessary to protect those interests.

B.5 Non-Compete

During the Restricted Period, Employee shall not, directly or indirectly, within the Restricted Territory:

(a) own, manage, operate, control, be employed by, consult for, or provide services to any Competing Business in a capacity that involves [SAME OR SIMILAR DUTIES / USE OF CONFIDENTIAL INFORMATION] as Employee performed for the Company; or

(b) engage in any business activity that is competitive with the Business of the Company in the capacity described in subsection (a).

Carve-out: Nothing in this Section restricts Employee from holding a passive ownership interest of less than 2% in any publicly traded entity.

B.6 Non-Solicitation of Customers

During the Restricted Period, Employee shall not, directly or indirectly, solicit, divert, or attempt to solicit or divert any Customer (i) with whom Employee had material business contact during the last 24 months of employment, or (ii) about whom Employee obtained Confidential Information, for the purpose of providing products or services competitive with the Business of the Company.

B.7 Non-Solicitation of Employees

During the Restricted Period, Employee shall not, directly or indirectly, solicit for employment, hire, or attempt to hire any person who was employed by the Company during the last 12 months of Employee's employment, other than through a general public advertisement not targeted at Company employees.

B.8 Consideration

In addition to continued employment, the Company shall provide Employee with the following independent consideration for this Agreement (select all that apply):

☐ Sign-on bonus of $[____________], payable within [___] days of execution.
☐ Promotion to [POSITION] effective [__/__/____].
☐ Salary increase of $[____________] effective [__/__/____].
☐ Equity grant of [___] [shares/RSUs/units] under the Company's [PLAN NAME].
☐ Severance commitment: if the Company terminates Employee without Cause, the Company shall pay Employee severance equal to [____] months of base salary.
☐ Other: [____________]

Employee acknowledges that this consideration is over and above any continuation of at-will employment and is being provided in exchange for Employee's covenants under this Agreement.

B.9 Garden Leave (Optional)

☐ Garden Leave Period. Employee shall provide [___] days' written notice of resignation. During the notice period, the Company may (in its discretion) place Employee on paid garden leave, during which Employee shall remain an employee, receive base salary and benefits, and not work for any other entity. Time spent on garden leave shall reduce the Restricted Period day-for-day.

B.10 Remedies

(a) Injunctive Relief. Employee acknowledges that breach would cause irreparable harm and the Company is entitled to seek temporary, preliminary, and permanent injunctive relief without posting bond (or with minimum bond as required by law).

(b) Damages. The Company may seek monetary damages, including disgorgement of profits and consequential damages caused by breach.

(c) Tolling. The Restricted Period shall be tolled during any period of breach.

(d) Fee-Shifting Disclosure. Pursuant to 820 ILCS 90/25, a prevailing Employee in any action initiated by the Company to enforce this Agreement shall recover all costs and reasonable attorney's fees from the Company.

B.11 Reformation / Blue-Pencil

If any portion of this Agreement is held by a court of competent jurisdiction to be unreasonable or unenforceable, the parties request that the court modify the Agreement to the minimum extent necessary to render it enforceable, consistent with Cambridge Engineering, Inc. v. Mercury Partners 90 BI, Inc., 378 Ill. App. 3d 437 (1st Dist. 2007). If the court declines to modify, the unreasonable provision shall be stricken and the remainder enforced.

B.12 Choice of Law and Venue

This Agreement shall be governed by the laws of the State of Illinois without regard to conflicts-of-law principles. The parties consent to exclusive venue in the Circuit Court of [____________] County, Illinois, or the U.S. District Court for the [Northern/Central/Southern] District of Illinois.

B.13 Severability and Entire Agreement

The provisions of this Agreement are severable. This Agreement (together with [LIST RELATED AGREEMENTS]) constitutes the entire agreement between the parties on the subject matter and supersedes all prior negotiations and understandings.

B.14 Signatures

PART C — PRE-SIGNING CHECKLIST

C.1 Statutory Compliance

☐ Confirm employee's annualized earnings exceed $75,000 (non-compete) or $45,000 (non-solicit) under 820 ILCS 90/10
☐ Provide written advice-of-counsel notice (separate from or within the covenant)
☐ Deliver covenant at least 14 calendar days before signing or start date
☐ Document the delivery date and 14-day review window in writing
☐ Confirm employee is not in an excluded category (construction laborer, CBA-covered public-sector, lawyer, nurse-agency clinician, COVID-furloughed)
☐ Verify no out-of-state choice-of-law/venue clause for an Illinois-resident, Illinois-working employee
☐ Confirm fee-shifting disclosure language is included or acknowledged

C.2 Drafting Reasonableness

☐ Restricted Period is narrowly tailored (12 months or less is presumptively reasonable for most positions)
☐ Restricted Territory is tied to where employee actually worked or had customer contact
☐ Activity restriction limited to same/similar duties or use of confidential information
☐ Customer non-solicit limited to customers with whom employee had material contact in last 12–24 months
☐ Employee non-solicit limited to employees Employee worked with in last 12 months
☐ Carve-outs preserved (passive investments, general advertising, general-knowledge skills)

C.3 Consideration

☐ Independent consideration documented (sign-on bonus, equity, raise, severance) beyond continued at-will employment
☐ If relying on continued employment alone, confirm 2+ years of post-signing tenure expectation (Fifield)
☐ Consideration recital ties consideration specifically to the covenant

C.4 Recordkeeping

☐ Retain executed copy in personnel file for the longer of: employee tenure + 10 years, or applicable contract SOL
☐ Retain delivery proof (email, certified mail, electronic acknowledgment) showing 14-day window
☐ Retain "advised to consult counsel" acknowledgment signed and dated by employee

C.5 Exit Procedures

☐ Issue reminder of covenant obligations at termination (exit interview, separation letter)
☐ Confirm forwarding address for any required notices
☐ Evaluate whether to enforce, modify, or waive based on departing role
☐ Document any waiver or modification in writing signed by an authorized officer

SOURCES AND REFERENCES

• Illinois Freedom to Work Act, 820 ILCS 90/1 to 90/99: https://www.ilga.gov/legislation/ilcs/ilcs3.asp?ActID=3737&ChapterID=68
• Reliable Fire Equip. Co. v. Arredondo, 2011 IL 111871: https://www.illinoiscourts.gov/Resources/8617e1a3-2b3f-46e7-a72d-91d3a83a3a73/111871.pdf
• Fifield v. Premier Dealer Services, Inc., 2013 IL App (1st) 120327: https://www.illinoiscourts.gov/Resources/088c4cfb-c4f2-46a0-9be9-edc23e8c5310/1120327.pdf
• Cambridge Engineering, Inc. v. Mercury Partners 90 BI, Inc., 378 Ill. App. 3d 437 (1st Dist. 2007)
• Illinois Attorney General — Workplace Rights: https://illinoisattorneygeneral.gov/Page/Workplace-Rights
• Illinois Department of Labor: https://labor.illinois.gov/
• Illinois Broadcast Industry Free Market Act, 820 ILCS 17/10: https://www.ilga.gov/legislation/ilcs/ilcs3.asp?ActID=2425&ChapterID=68
• Nurse Agency Licensing Act, 225 ILCS 510/14(g): https://www.ilga.gov/legislation/ilcs/ilcs3.asp?ActID=1322&ChapterID=24
• Illinois Procurement Code, 30 ILCS 500/50-25: https://www.ilga.gov/legislation/ilcs/ilcs3.asp?ActID=565&ChapterID=7
• IL R S CT RPC Rule 5.6: https://www.illinoiscourts.gov/courts/supreme-court/rules-of-professional-conduct/
• 820 ILCS 90/25 (Fee-shifting): https://www.ilga.gov/legislation/ilcs/ilcs3.asp?ActID=3737&ChapterID=68