Non-Compete Agreements After the FTC Rule: What Chicago Businesses Need to Know

Non-compete agreements have long been a staple of employment relationships, used to protect everything from customer relationships to trade secrets. But the legal landscape for these agreements has shifted dramatically—and continues to shift.

If you’re an Illinois business relying on non-compete agreements, here’s what you need to know to stay protected and compliant.

THE CURRENT STATE OF NON-COMPETE LAW

The federal picture remains unsettled. The FTC issued a rule that would have largely banned non-compete agreements nationwide, but that rule has faced legal challenges, and its ultimate fate remains uncertain as of this writing.

Regardless of what happens federally, Illinois businesses face substantial state-level restrictions that are already in effect and enforceable.

ILLINOIS RESTRICTIONS ALREADY IN PLACE

The Illinois Freedom to Work Act, along with subsequent amendments, has significantly limited when and how non-compete agreements can be used:

Income thresholds: Non-compete agreements are unenforceable against employees earning below specified annual thresholds. These thresholds are adjusted periodically, so agreements that were once valid may no longer be enforceable.

Timing requirements: Employers must advise employees in writing to consult with an attorney before signing, and must provide at least 14 days to review the agreement.

Adequate consideration: For existing employees, non-compete agreements generally require at least two years of continued employment to constitute adequate consideration.

Prohibited practices: Non-competes cannot be used against employees covered by collective bargaining agreements, and there are additional restrictions for certain low-wage workers.

Practical enforceability: Even when technically permitted, Illinois courts apply a “totality of the circumstances” test that makes overly broad non-competes difficult to enforce.

The bottom line: If you haven’t reviewed your non-compete practices recently, some of your agreements may already be unenforceable—and using prohibited agreements can expose you to penalties.

WHAT STILL WORKS TO PROTECT YOUR BUSINESS

The restrictions on non-competes don’t mean you’re without options for protecting legitimate business interests. Several alternatives remain viable and, in many cases, are more effective than non-competes:

Non-solicitation agreements: Restrictions on soliciting your customers or employees are subject to fewer restrictions than non-competes and are often more directly tied to the interests you’re trying to protect.

Confidentiality agreements: Protecting trade secrets and confidential information is distinct from restricting competition. Well-drafted confidentiality obligations remain enforceable and can provide significant protection.

Garden leave provisions: Rather than restricting post-employment activity, these provisions pay employees during a transition period in exchange for their agreement not to work for competitors during that time.

Intellectual property assignments: Clear agreements about ownership of work product created during employment protect innovation without restricting employee mobility.

Strong operational security: Sometimes the best protection is structural—limiting access to sensitive information, documenting proprietary processes, and maintaining robust trade secret protections.

PRACTICAL STEPS FOR BUSINESSES

Given the evolving legal landscape, Illinois businesses should take these steps:

Audit existing agreements: Review all non-compete agreements currently in effect. Identify those that may be unenforceable under current law. Prioritize relationships where protection is most important.

Assess enforceability: For each agreement, evaluate whether it meets current legal requirements—income thresholds, procedural requirements, adequate consideration, and reasonable scope.

Develop compliant alternatives: Where non-competes aren’t available or enforceable, develop alternative protections that address your actual concerns. Often these alternatives provide more practical protection than non-competes would.

Update templates and practices: Ensure your standard agreements and offer processes comply with current requirements. Train managers on what can and cannot be discussed or required.

Consider selective use: Non-competes remain appropriate for senior executives and employees with access to truly proprietary information—where they’re most enforceable anyway. Consider reserving them for these situations rather than using them broadly.

PROTECTING YOUR BUSINESS IN THE NEW LANDSCAPE

The shift away from broad non-compete use isn’t necessarily bad for businesses. Non-competes were often over-relied upon—used as a substitute for genuine trade secret protection, operational security, and employee engagement.

The businesses best positioned in the current environment are those that protect what matters most through multiple mechanisms: legal agreements where appropriate, operational practices that limit exposure, and workplace cultures that retain key employees through positive rather than restrictive means.

Your Outside GC can help you navigate this transition—auditing existing agreements, developing enforceable alternatives, and building a protection framework suited to your actual risks and the current legal environment.

Let’s talk about protecting your business the right way.