This year has seen an increase in state legislation addressing noncompetition agreements (“non-competes”). Following Washington, D.C.’s passage of a ban on non-competes in January 2021 (addressed in greater detail here), Oregon, Nevada, and Illinois undertook revisions to their respective non-compete statutes. These legislative updates are summarized below.
On May 21, 2021, Governor Kate Brown approved the proposed amendments to Oregon’s non-compete statute. The revised statute, which takes effect on January 1, 2022, provides that non-competes between an employer and employee are void and unenforceable unless:
- The employer informs the employee in a written employment offer at least two weeks before the employee begins work that they must sign a non-compete agreement as a condition of their employment, or the employee signs the non-compete as part of a bona fide advancement after their employment has begun;
- The employee is engaged in administrative, executive or professional work, performs predominantly intellectual, managerial, or creative tasks, exercises discretion and independent judgment, and is paid on a salary basis;
- The employer has a protectable interest (i.e., the employee has access to trade secrets or competitively sensitive confidential business or professional information, or is employed as on-air talent by an employer in the business of broadcasting);
- The employer provides the employee with a signed, written copy of the non-compete agreement within 30 days after termination of their employment; and
- The employee’s total gross salary and commissions at the time their employment ends exceeds $100,533 (adjusted annually for inflation).
The amended statute also decreases the enforceable non-compete period from 18 months to 12 months, and includes a limited exception to the salary and duties thresholds described above. An employer may enter into a non-compete agreement with an employee who is not engaged in administrative, executive or professional work and whose salary falls below $100,533 if the employer agrees in writing to provide the employee with compensation equal to at least 50% of their annual gross base salary and commissions, or 50% of $100,533 (adjusted annually for inflation), whichever is greater, during the non-compete period.
Under Nevada law, non-competes are void and unenforceable unless they are supported by valuable consideration, do not impose any restraint that is greater than required for the employer’s protection, do not impose an undue hardship on the employee, and impose restrictions that are appropriate in relation to the valuable consideration supporting the agreement.
Non-competes also may not restrict, and an employer may not bring an action to restrict, a former employee from providing services to a former customer or client if the former employee did not solicit the former customer, the customer voluntarily chose to leave and seek services from the employee, and the employee is otherwise in compliance with the agreement’s geographic, temporal, and other restrictions.
Pursuant to the statute’s amendments, which take effect on October 1, 2021, employers may not enter into non-competes with employees who are paid solely on an hourly wage basis, exclusive of any tips or gratuities. In addition, if a court determines that a non-compete applies to an employee paid on an hourly wage basis, or the employer attempted to restrict the employee from working with a customer the employee did not solicit (as described in the preceding paragraph), the court will award the employee reasonable attorneys’ fees and costs.
On May 31, 2021, the Illinois General Assembly passed a series of amendments to the Illinois Freedom to Work Act. The Act imposes limits on the scope and enforceability of non-compete agreements. Should Governor J.B. Pritzker sign the amendments into law, the following restrictions will take effect after January 1, 2022:
- Employers will not be permitted to enter into a non-compete with an employee unless the employee’s actual or expected annualized rate of earnings exceed $75,000 per year. This amount will increase to $80,000 on January 1, 2027, $85,000 on January 1, 2032, and $90,000 on January 1, 2037.
- Employers will also not be permitted to enter into non-solicitation agreements with an employee unless the employee’s actual or expected annualized rate of earnings exceeds $45,000 per year. This amount will increase to $47,500 on January 1, 2027, $50,000 on January 1, 2032, and $52,500 on January 1, 2037.
- Employers will not be permitted to enter into non-compete or non-solicitation agreements with an employee who has been terminated, furloughed, or laid off as a result of business circumstances or governmental orders related to the COVID-19 pandemic (or under similar circumstances to the COVID-19 pandemic), unless enforcement of the non-compete includes compensation equivalent to the employee’s base salary at the time their employment was terminated for the period of enforcement (minus any compensation the employee earned through subsequent employment during the restricted period).
- A non-compete will be 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 certain individuals employed in construction.
- A non-compete or non-solicitation agreement will also be illegal and void unless (1) the employer advises the employee in writing to consult with an attorney before entering into the agreement and (2) the employer provides the employee with a copy of the agreement at least 14 calendar days before their employment commences or the employer provides the employee with at least 14 calendar days to review the agreement.
- If an employee prevails on a claim to enforce a non-compete or non-solicitation agreement in a civil action or arbitration filed by an employer (including, but not limited to a complaint or counterclaim), the employee will recover from the employer all costs and all reasonable attorney’s fees regarding their claim to enforce the non-compete or non-solicitation agreement.
In light of these recent legislative changes, employers in Nevada, Oregon, and Illinois should consider whether they will require certain employees execute non-competes before the revised statutes take effect, implement new policies or restrictive covenants (such as confidentiality agreements) to protect their interests, and consult with counsel to ensure any future non-competes comply with their legal obligations.