New laws impact Illinois employers in 2022

At a glance

• Restrictions on non-compete and non-solicit agreements now in effect
• Equal pay reporting requirements take effect in March 2022
• Amendments to the Artificial Intelligence Video Interview Act

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Restrictions on non-compete and non-solicit agreements now in effect

On January 1, 2022, an amendment to Illinois’ Freedom to Work Act went into effect. The new law imposes significant new restrictions on the use of non-competition and non-solicitation agreements. The new law applies to all covered agreements entered into or modified after that date.

Under the new law:

• Non-compete agreements are barred for employees earning less than USD 75,000 annually (this amount increases by USD 5,000 every 5 years);
• Customer and employee’s non-solicit agreements are barred for employees earning less than USD 45,000 annually (increasing by USD 2,500 every 5 years);
• Non-compete and non-solicit agreements must be supported by “adequate” consideration beyond at-will employment (unless the employee ends up working more than 2 years for the employer);
• Employees must be advised in writing to consult an attorney before signing the agreement and must be given 14 days to review the agreement before signing, although this period is waivable by the employee;
• Employees who prevail in enforcement actions brought by employers are entitled to mandatory attorney’s fees; and
• The law explicitly discourage courts from reforming (or “blue-penciling) over-broad covenants, meaning courts are more likely to invalidate covenants found to be overbroad.

Covered Agreements

The new law applies to “covenants not to compete” and “covenants not to solicit,” which are defined as follows:

• “Covenants not to compete” are agreements entered into between an employer and employee that restrict the employee from performing:
  • any work for another employer for a specified period of time;
  • any work in a specified geographical area; or
  • work for another employer that is similar to such employee's work for the employer included as a party to the agreement.
• “Covenants not to solicit” are agreements between an employer and an employee that restrict the employee from:
  • soliciting for employment the employer's employees; or
  • soliciting, for the purpose of selling products or services of any kind to, or from interfering with the employer's relationships with, the employer's clients, prospective clients, vendors, prospective vendors, suppliers, prospective suppliers, or other business relationships.

Excluded Agreements

The law does not apply to: (i) any agreement entered into before January 1, 2022; (ii) confidentiality covenants, (iii) invention assignment agreements, (iv) covenants entered into by a person purchasing or selling the goodwill of a business or otherwise acquiring or disposing of an ownership interest, (v) agreements not to reapply for employment after termination, and (vi) garden leave clauses / agreements, i.e. provisions requiring a paid period of notice before the employment relationship terminates.

Requirements for a Valid Non-Compete or Non-Solicit

The law provides that non-competition and non-solicitation agreements are illegal and void unless all of the following apply:

• The employee receives adequate consideration. If an employee does not end up working for the employer for two years after entering the covenant (which is of course not knowable at the outset of the agreement), non-competition and non-solicitation agreements must have been supported by additional “professional or financial benefits” in order to be enforceable. The law does not specify what constitutes adequate professional or financial benefits;
• The covenant is ancillary to a valid employment relationship;
• The covenant is no greater than is required for the protection of a legitimate business interest of the employer;
• The covenant does not impose an undue hardship on the employee; and
• The covenant is not injurious to the public.

Equal pay reporting requirements take effect in March 2022

Under recent amendments to the Illinois Equal Pay Act (IEPA) private employers with more than 100 employees in Illinois who are required to file an annual EEO-1 with the Equal Employment Opportunity Commission (EEOC) will be required to regularly apply for an equal pay registration certificate with the Illinois Department of Labor (IDOL) with effect from March 2022 onwards.

Covered employers will have to provide demographic and wage data and a statement certifying the employer’s compliance with various equal pay and discrimination laws, submit their most recent EEO-1 report, and pay a USD 150 fee.

The IDOL will assign each employer a deadline for application between March 24, 2022 and March 23, 2024. Employers authorized to do business in Illinois as of March 23, 2021 must apply between March 24, 2022 and March 23, 2024, and employers authorized to do business in Illinois after March 23, 2021 must apply within 3 years of commencing business operations, but not before January 1, 2024, but all employers must wait for deadline assignments from the IDOL.

When applying or recertifying for an equal pay registration certificate, employers must compile a list of all employees during the past calendar year, and in the list:

• separate the employees by gender, race and ethnicity as reported in the company’s most recently filed EEO-1;
• include the county in which the employee works;
• include the date the employee started working for the business;
• include “any other information the IDOL deems necessary to determine if pay equity exists among employees”; and
• report the total wages paid to each employee over the course of the past calendar year, rounded to the nearest USD 100.

In the certification statement, the employer must attest:

• That the business complies with the IEPA and “other relevant laws”–including but not limited to Title VII, the federal Equal Pay Act of 1963, the Illinois Human Rights Act (IHRA) and the Illinois Equal Wage Act;
• That the company’s average compensation for female and minority employees is not consistently below the average compensation (as determined by the US Department of Labor) for its male and non-minority employees within each of the major job categories in the EEO-1 for which an employee is expected to perform work. This takes into account factors such as length of service, requirements of specific jobs, experience, skill, effort, responsibility, working conditions, education or training, job location, use of a collective bargaining agreement or “other mitigating factors”;
• That the business does not restrict employees of one sex to certain job classifications, and makes retention and promotion decisions without regard to sex;
• That the company corrects wage and benefit disparities when they are identified to ensure compliance with the equal pay and discrimination laws;
• How often wages and benefits are evaluated; and
• The approach the business takes in determining the level of wages and benefits to pay its employees (with acceptable approaches including, but not being limited to, a wage and salary survey)

Employers are encouraged to start compiling data to report now in advance of notification by the IDOL of their reporting deadline.

Amendments to the Artificial Intelligence Video Interview Act

Employers in Illinois who use artificial intelligence in recruitment will face additional scrutiny in 2022. Effective January 1, 2022, amendments to the Artificial Intelligence Video Interview Act require employers who solely rely on AI analysis of video interviews to determine which applicants receive in-person interviews to annually report certain data related to the race and ethnicity of applicants. Specifically, employers must report the race and ethnicity of applicants who are and are not offered in-person interviews and applicants who are ultimately hired annually by December 31. The report must include the data collected in the 12-month period ending on November 30 preceding the filing of the report. The amendments further provide that the Illinois Department of Commerce and Economic Opportunity must analyze the data and report to the Governor and General Assembly by July 1 of each year whether the data reveals a racial bias in the use of artificial intelligence.