Illinois Increases Compensation Thresholds for Noncompete and Non-Solicitation Agreements in 2027
On January 1, 2027, the minimum earnings required to enter enforceable employee non-compete and non-solicitation agreements will increase under the Illinois Freedom to Work Act. Illinois employers should use the remainder of 2026 to review how they assign, draft, and administer restrictive covenants.
What Is Changing on January 1, 2027?
For agreements entered on or after January 1, 2027, an employee’s actual or expected annualized earnings must exceed $80,000 for a non-compete agreement, up from $75,000 today. For a non-solicitation agreement, earnings must exceed $47,500, up from $45,000. The statutory language matters and earnings must exceed the threshold. So, an employee earning exactly $80,000 does not qualify for a non-compete. A covenant entered in violation of the applicable threshold is void and unenforceable.
What Counts as “Earnings”?
The Illinois Freedom to Work Act does not look only at base salary. “Earnings” generally include compensation reported in Box 1 of the employee’s Form W-2, such as salary, wages, bonuses, commissions, and other taxable compensation, as well as certain elective deferrals, including employee contributions to qualifying retirement plans. Nontaxable fringe benefits, such as certain health and welfare benefits, generally are not included.
Employers should evaluate the employee’s total expected annualized earnings, not merely the stated base salary, and should be careful when relying on anticipated bonuses or commissions. If that compensation is uncertain or discretionary, it may be difficult to show that the employee’s expected earnings exceeded the threshold when the agreement was signed.
Which Agreements Are Covered?
The $80,000 threshold applies to a “covenant not to compete,” generally an agreement that restricts an employee from working for another employer for a specified period, within a specified geographic area, or doing work similar to that of the original employer. The $47,500 threshold applies to a “covenant not to solicit,” which can include restrictions on soliciting employees or interfering with the employer’s relationships with actual or prospective customers, clients, vendors, or suppliers.
The statutory definitions, not the heading on a contract provision, determine which threshold applies. An employer cannot avoid the noncompete threshold by labeling a substantive restriction as a confidentiality or non-solicitation provision. The Illinois Freedom to Work Act does exclude certain agreements, including appropriately drafted confidentiality provisions, trade-secret protections, invention-assignment agreements, and restrictions arising from the sale of a business or ownership interest, but those provisions should still be reviewed to ensure they do not operate as an indirect restraint on lawful competition.
What Happens to Existing Agreements?
The 2027 increases generally apply to agreements entered into on or after January 1, 2027, and should not automatically invalidate an otherwise enforceable agreement signed before that date. Employers should be cautious, however, when amending, renewing, replacing, or asking an employee to reaffirm an existing agreement after January 1, 2027. This is because the revised arrangement could be treated as a new agreement subject to the higher thresholds.
The earnings threshold is also only one part of the analysis. An Illinois restrictive covenant generally must also be supported by adequate consideration, be ancillary to a valid employment relationship, protect a legitimate business interest, be no broader than necessary to protect that interest, avoid undue hardship on the employee or injury to the public, and comply with the Illinois Freedom to Work Act’s written notice and attorney-review requirements. Meeting the earnings threshold does not, by itself, make a covenant enforceable.
Illinois Is Part of a Broader National Trend
Illinois is not alone in conditioning the use of restrictive covenants on an employee’s compensation. Colorado, Maine, Maryland, Oregon, Virginia, Washington, and the District of Columbia are among some of the jurisdictions that use compensation-based limitations in regulating noncompete agreements or related restrictions.
The requirements vary significantly. Some jurisdictions adjust their thresholds annually, some apply different standards to non-competes and customer non-solicitation provisions, and others largely prohibit employee non-competes. Employers operating in multiple states should not assume that an Illinois-compliant agreement will be enforceable elsewhere.
How to Prepare
Employers should begin by identifying which employees with non-compete or non-solicitation agreements are expected to earn near or below the new thresholds, and by updating offer letters, employment agreements, and standalone restrictive covenant forms to reflect the increased limits. Agreements expected to be signed in late 2026 or early 2027 should be evaluated based on the date they will be entered into, and employers with employees in multiple states should determine whether another state’s law imposes a higher threshold or prohibits the restriction altogether. Employers should not use the same restrictive covenant for every employee. Depending on the employee’s compensation, role, access to confidential information, and customer relationships, the appropriate agreement may include only confidentiality, trade-secret, invention-assignment, or other permissible protections. Finally, Illinois employers generally must provide the agreement to the employee at least 14 calendar days before employment begins or before the employee must sign it, and must advise the employee in writing to consult with an attorney.
It’s also worth noting that thresholds will increase again in 2032, when the non-compete threshold rises to $85,000 and the non-solicitation threshold rises to $50,000, with additional increases scheduled for 2037. The January 1, 2027, changes are a good opportunity to move away from uniform forms and toward narrower, more carefully targeted agreements that better protect the employer’s interests in the event that legal scrutiny is required.
If you need assistance reviewing or updating your restrictive covenant agreements before the new thresholds take effect, Levin Ginsburg’s employment law practice has extensive experience in employment law and corporate counseling.
