Ping® October 2021 Changes Coming to Non-Compete Agreements in Illinois

EMPLOYMENT (820 ILCS 90/) Illinois Freedom to Work Act.

Illinois passed a law that amends the Illinois Freedom to Work Act. Expands the scope of the Act to apply to all employees (rather than only low-wage employees). Prohibits all covenants not to compete.

Scope

The law goes into effect January 1, 2022 and amends the Freedom to Work Act (the Act), which restricts the use of non-compete agreements for low wage workers. For the first time, Illinois will have statutory requirements for mandatory review periods, definitions of adequate consideration and legitimate business interests, as well as specific salary minimums for employees subject to restrictive covenants. 

Application

The law will apply to non-compete and non-solicit covenants. The law does not apply to contracts covering confidential and proprietary information, protection of trade secrets, or inventions assignment agreements. The law also does not address covenants for independent contractors, and expressly carves out restrictions on a person purchasing or selling the goodwill  or an ownership interest in a business.

Mandatory Review

The law requires that an employer advise the employee in writing to consult with an attorney prior to entering into the covenant and provide the employee with at least 14 calendar days to review the agreement. 

Consideration

Contract lawyers know that to be enforceable a promise must be supported by consideration. Due to the unique nature of restrictive covenants, there is heightened scrutiny of what will constitute sufficient consideration for a restrictive covenant under the Illinois law. The leading Illinois case, 

Fifield v. Premier Dealer Services, Inc., 993 NE 2d 938 (Ill.App.1st 2013), an Illinois court decided that mere employment or continued employment for at-will employees, is not adequate consideration to support a restrictive covenant unless the employee remains employed with the employer for at least two years after signing the agreement. 

Illinois law will now expressly defines “adequate consideration” as either (1) the employee working for the employer for at least two years after signing the non-compete or non-solicitation covenant or (2) other sufficient consideration, such as “a period of employment plus additional professional or financial benefits or merely professional or financial benefits adequate by themselves.”

The law leaves open the definition of “additional professional or financial benefits.” Courts have found signing bonuses, equity grants, and other types of consideration sufficient under current case law. 

Going Forward

While there is time to plan for the effect of the new law, it’s not too soon to begin reviewing current existing “form” contracts and consider changes. One-size-fits-all contracts always need fine-tuning. Change sin the business operating environment require a closer look at non-compete and non-solicitation covenants. 

Ping® – Arts, Entertainment, Media & Advertising Law News – “Five Rs” To Remember

“Five Rs” To Remember When Letting Employees Go

It is inevitable in almost every business. You will need to let an employee go. Whether it’s a seasoned designer coming with plug-and-play experience or a fresh face just out of design school, sometimes it just doesn’t work out. Recently, several of my designer clients have had to fire an employee due to the employee’s misconduct. This could be anything from soliciting and directing company clients and prospects, to doing personal consulting work on the company’s dime, to taking property and information. Regardless of the reason, here are five “R”s to keep in mind.

1. Review the contract.

2. Reconcile and pay.

3. Request return of property.

4. Reiterate respectfulness. 

5. Reserve rights.

With those ideas in mind, let’s consider each one. A little more.

1. Review the contract/offer letter. This is always the first step and will provide guidance on termination rights, procedures and remedies, if any.

2. Reconcile and pay what’s owed. See number 1. Ensure that except for payment of contractual and statutory amounts, no other salary, commissions, overtime, bonuses, vacation pay, sick pay, severance pay, additional severance pay or other payments or benefits whatsoever will be paid.

3. Request return of property and information, in whatever form. Request all property any and all property or documents the employee created or received in the course of employment, including, but not limited to e-mails, passwords, documents and other electronic information, hardware such as laptop computers and cellular telephones, calculators, smartphones and other electronic equipment (mobile phone, tablet, etc.), software, keys, company credit cards, calling cards, parking transponder, information technology equipment, client lists, files and other confidential and proprietary documents, in any media or format, including electronic files.

4. Reiterate a professional’s obligation to remain respectful. Specific admonition of non-disparagement such as “refrain from saying, making, writing or causing to be made or written, disparaging or harmful comments about us, our employees and/or our clients.”

5. Reserve rights. Close your termination notice by expressly reserving legal and equitable rights and remedies.

Please note that this is not legal advice and you should consult your own lawyer regarding your rights and obligations in the context of terminating your employee’s employment.

Why Now is the Time to Buy or Sell a Business

Looking for Business Opportunities Ahead of the Economic Fallout

In this difficult time of staying at home, people may be looking to buy or sell a business. We have all been impacted in different ways, each of which may be a reason to make a change. Traditional reasons people exit a company arise because of changing economic conditions, a tragic family event, a loss of passion, or simply the desire to retire. At the same time, buyers may be seeking to expand in a sector or industry, add talent, enlarge the customer base, or acquire technologies or resources that can provide a competitive advantage. Witness the unprecedented overnight shift to tele-work, tele-health, remote online primary school education, and live-streamed happy hours and family gatherings.

Thinking of Buying or Selling a Business?

If you are thinking of buying or selling a business, here are three key reasons to act now. First, labor is in flux, and available. As retailers, restaurants, travel companies and other service sectors that employ tens of millions of Americans get squeezed, the tech sector, which tends to have relatively few employees, has surged. Many target businesses may have a lower headcount while retaining a leaner operating infrastructure and access to a ready, willing, and trained talent pool.

Second, the federal government will do what it takes to stabilize the economy and accelerate the recovery. Nevertheless, there is a real risk of many “main-street” companies going bankrupt – making them easy acquisition targets. Opposite that, large-scale public companies (consumer-packaged goods, media) are boosting the broader recovery. Companies on either side of this equation may benefit from the changing market dynamics and opportunities for what comes next. As of this writing, nine states have lifted the stay-at-home orders or will let them expire, with many others soon to follow. The window is closing.

Third, one of few benefits of the current crisis is the acceleration of investment and escalation of consumer-facing products, services, and technologies. Reports indicate that 2020 shows a year-over-year (YoY) increase of over 15% in use of contactless payments.  This is a real opportunity for companies to not only “get lean” but also digitize business practices that can improve the customer experience.

Changing consumer behavior will continue to force this along. According to Forbes, U.S. YoY online retail revenue growth is up 68% in April, surpassing the earlier peak of 49% in early January. U.S. & Canadian e-commerce orders grew 129% with 146% growth in all online retail orders. Online conversion rates increased 8.8% in February, an increase of shopping intensity usually seen only during rare events such as Cyber Monday.

Bottom Line

Most people are sitting around waiting for things to shift and change around them, while others are moving through it all and pivoting on their own. Don’t wait for your competitors to invest in the next generation technologies. Working with experienced legal counsel will help you identify the opportunities and act quickly to negotiate and close a deal. If you are interested in learning more about buying or selling a business, please get in touch.

Choosing the Right Legal Entity for Your Business – Webinar

Seasoned business owners usually know enough to invest in the protection of some form of business entity. Too often, these individuals fail to engage in the necessary business and tax planning to get the most from their investment.
Whether you are a sole proprietor, partnership, corporation, limited liability company (LLC), limited liability partnership, or hybrid entity, you will gain useful knowledge. This webinar covers why a business owner should consider the benefits and costs of each type of entity, the existence of limited liability for owners, flexibility in terms of governance and ownership structure, and favorable treatment under state and Federal income tax laws. More sophisticated entrepreneurs may find certain advantages in terms of estate and gift planning and flexibility in operations and management.
I want to say thanks to the folks at IVY for giving me the opportunity to present the Ivy Webinar – Choosing the Right Legal Entity for Your Business with David M. Adler. In case you missed it, there is a link to the full webinar details below.
NOTICE AND DISCLAIMER: The webinar content is for informational purposes only. It is not legal advice and does not create a lawyer-client relationship with David M. Adler.
View Webinar Here.