Illinois Employment Law Developments

Illinois may be on the road to becoming the “California” of the Midwest based on the latest developments in its employment laws. The following is a look at the key regulatory changes for 2022 and possible changes for 2022 and beyond.

Restricting Restrictive Covenants: Noncompetition and Nonsolicitation

Effective 1 January 2022, an amendment to the “Illinois Freedom to Work Act” will codify the following changes to restrictive covenant law by statute:

• Noncompetition covenants are only enforceable against individuals making more than US$75,000 per year.
• Nonsolicitation covenants are only enforceable against individuals making more than US$45,000 per year.
• Noncompetition and nonsolicitation covenants are only enforceable if the individual receives “adequate consideration” at the time of executing the covenant or alternatively after the individual has worked for the company for a minimum of two years.
• Employers must provide employees with at least 14 days to review the restrictive covenant agreement or provision after the agreement is provided or—alternatively—14 days prior to the employee’s start date of employment. Further, employers must inform employees in advance of signing of their right to consult with an attorney.

The new statute also defines “adequate consideration” (albeit rather vaguely); codifies other common law principles, such as “legitimate business interest”; and allows a prevailing employee to recover costs and reasonable attorney’s fees in cases when the employer unsuccessfully sues to enforce a covenant.

Note that the law will not apply retroactively to any restrictive covenants in existence before 1 January 2022. As the amendment also contains specific requirements relating to pandemic-related layoffs and enforceability of post-employment restrictions, employers should re-examine their restrictive covenant agreements for compliance with these changes. Specifically, employers should ensure that any such covenants are offered only to employees falling within the respective salary ranges, and incorporate some sort of additional compensation or other tangible benefit to satisfy the “adequate consideration” requirement for noncompetition and nonsolicitation covenants.

Pay Equity Disclosure and Amendment

On 23 March 2021, Governor Pritzker signed SB 1480 into law, which requires employers operating in Illinois who file EEO-1 reports to submit similar reports, including wage disclosures, to the state of Illinois. Governor Pritzker amended the law on 5 June 2021 to shorten the certification period, address data privacy concerns, and allow more flexibility for employers to explain their approach to setting compensation.

SB 1480

SB 1480 amends the Illinois Business Corporation Act (IBCA) and the Illinois Equal Pay Act to promote transparency in employers’ diversity efforts and pay equity practices. Of note, SB 1480 requires covered employers to submit two items to the state:

1. File Section D of its EEO-1 report (submitted to the EEOC) to the Illinois Secretary of State.
2. File a list of employees, as reported in the EEO-1 report, and their wages to the Department, grouped by race and gender.

In addition to the wage disclosure, employers would need to remit a US$150 filing fee with the Department and submit an Equal Pay Act compliance statement signed by a corporate officer, legal counsel, or authorized agent of the business.

The Illinois Secretary of State will make the EEO-1 report public, whereas the Department will not publish the wage disclosure.

Prior to the amendment (discussed in detail below), employers had until 1 January 2023 to submit the EEO-1 report and until 24 March 2024 to submit the required wage disclosure.

SB 1847

In advance of the Illinois Secretary of State or the Department providing guidance on how to further comply with SB 1480, Governor Pritzker signed SB 1847 (the Amendment) into law in June, which further amended the IBCA. The notable changes include:

• Shortened certification period.
• Additional demographic information.
• Setting forth an appeal process.
• Address privacy concerns.
• Amended penalties.

Shortened Certification Period

The Amendment now requires employers to submit an application for equal pay registration certification between 24 March 2022 and 23 March 2024, and it further requires employers to recertify every two years thereafter. The Department will assign each business a date of when each business must submit an application to obtain the equal pay registration certificate. The Amendment makes clear that the Department’s failure to assign a business a registration does not exempt the business from compliance under the Amendment—at most, it may be a mitigating factor when determining a violation. As such, employers should not ignore their assigned date for which they must submit an application for the equal pay registration certificate.

Demographic Information

The Amendment now requires covered employers who are required to file the EEO-1 report to disclose the county in which the employee works, the date the employee starting working, and “any other information the Department deems necessary to determine if pay equity exists among employees[.]”

Wage Disclosure and Factors

In addition to the disclosure of employees’ demographic information, the Amendment requires covered employers who are required to obtain the equal pay registration certification to state, in their certification, that the “average compensation for its female and minority employees is not consistently below the average compensation . . . for its male and non-minority employees . . . taking into account factors such as length of service, requirements of specific jobs, experience, skill, effort, responsibility, working conditions of the job, education or training, job location, use of a collective bargaining agreement, or other mitigating factors[.]” As such, the Amendment allows for more flexibility for the employer to explain its approach to wage compensation.

Appeal Procedure

The Amendment offers a cure period during which employers can correct any deficiencies in their equal pay registration certification application to the Department. After 1 January 2022, the Department must issue an equal pay registration certificate or a statement of why the application was rejected. An employer will have 30 calendar days from receiving the rejection to “cure any deficiencies in its application that led to the rejection, and re-submit the revised application to the Department.”

Before the Department can suspend or revoke the employer’s equal pay registration certification, the Department must first attempt to conciliate with the employer regarding wages and benefits due to the employees. Additionally, prior to imposing civil penalties, the employer may obtain an administrative hearing in accordance with the Illinois Administrative Procedure Act.

Data Privacy Protection

Concerns surrounding the disclosure of employees’ identifiable information to the state of Illinois were raised in conjunction with SB 1480. The Amendment now clarifies that “any individually identifiable information” submitted to or related to the equal pay registration application “shall be considered confidential information” and will not be subject to the disclosure of the Illinois Freedom of Information Act. The Amendment defines “individually identifiable information” as “data submitted pursuant to [the Amendment] that is associated with a specific person or business.” It does not encompass “aggregate data,” which is data that is “reasonably calculated to prevent the association of any data with any individual business or person[,]” including “job category and the average hourly wage by county for each gender, race, and ethnicity category[.]”

Note, however, that the privacy protection does not impact the EEO-1 report on the gender, race, and ethnicity of an employer’s employees that will be published by the Illinois Secretary of State.

Amended Penalties

In a private action brought within five years from the date of the violation, where the employee identifies that he or she has been underpaid, the employee may recover the entire amount of the underpayment plus interest, as well as compensatory damages (or special damages of no more than US$10,000), punitive damages, injunctive relief, and reasonable attorney’s fees.

Employers are also subject to a civil penalty for each employee affected as follows:

Recommendation

SB 1480 and SB 1847 open an avenue for potential collective or class actions brought by employees for systemic pay disparities. As such, employers should begin auditing their current pay practices and begin collecting the necessary information as to employees’ demographics in preparation for submitting an anticipated public EEO-1 report and wage disclosures to ensure compliance.

A Permanent Ban of “Right To Work” Laws?

In May 2021, House and Senate Joint Resolutions No. 34 and 11 passed with bipartisan support. Therefore, in November 2022, Illinois voters will be able to decide whether the Illinois Constitution should be amended to include a fundamental right for workers to unionize and “collectively bargain through representatives of their own choosing for the purposes of negotiating wages, hours, and working conditions, and to protect their economic welfare and safety at work.”

The amendment provides that “no law [including agreements between employers and labor organizations] shall be passed that interferes with, negates, or diminishes the right of employees to organize and bargain” over said conditions. If passed, the amendment could effectively ban “right to work” laws in Illinois. About half of the states have “right to work” laws that prohibit “union security” clauses in collective bargaining agreements that require union-represented employees to join or pay certain financial core dues for their union representation.

No More Presumption of At-Will Employment?

In contrast to the most states, Illinois is considering banning at-will employment as a default principle within its borders. Pending legislation, HB 3530 and SB 2332, propose to prohibit the “unjust discharge of an employee” and to require employers to “utilize discipline measures.” Specifically, employers would not be able to discharge an employee “without just cause,” which is only partially defined in the current versions of the legislation. Moreover, “just cause” would not be able to be based on off-duty conduct unless there is a “demonstrable and material nexus” between the conduct and the employee’s job performance or the employer’s legitimate business interests. As the line between the on-duty and off-duty conduct is quite blurry, especially with the use of technology and the number of employees working remotely over the past two years, this will present a complex evaluation of the circumstances surrounding a termination decision. Although both bills are still in their early stages, HB 3530 is gaining some traction in the Illinois General Assembly. If passed, Illinois would become one of the few states that would not recognize at-will employment, absent an employment agreement. Employers in Illinois or those with employment agreements that specify Illinois law as governing, would need to re-examine their employment agreements and handbook policies containing at-will employment provisions, as well as implement performance review procedures and revise employment policies to clearly define behaviors that would constitute “just cause.”