What employers should review before updating employment agreements

Which state's employment law applies to a remote employee?

In most cases, the law of the state where the employee physically works applies, regardless of where the company is headquartered. A Chicago company with a remote employee in another state will generally need to follow that state's wage, leave and restrictive covenant rules for that person.

A choice-of-law clause selecting Illinois law does not always solve this. Several states limit an employer's ability to apply another state's law to employees who live and work there, particularly for non-competes. Some cities also add their own minimum wage, paid leave or scheduling requirements on top of state law.

Before drafting, list where each employee actually works, including people who moved after they were hired. That list decides which version of the agreement each person needs.

Can an employer change the terms of an existing employment agreement?

An employer can usually change terms for current employees, but whether the change is enforceable depends on the agreement, the type of term and state law. If the existing agreement has a fixed term or says it can only be amended in writing signed by both parties, the employer will need the employee's agreement.

For new obligations that restrict the employee, such as a new non-compete, courts often look for consideration beyond continued at-will employment. That can mean a raise, a bonus or another real benefit tied to signing. Rules on what counts as adequate consideration vary by state.

Applying new terms only to new hires avoids most of these questions. The cost is managing two populations on different terms, which needs careful record-keeping so that the right agreement is enforced against the right person.

Are non-compete agreements enforceable in Illinois?

Non-competes can be enforceable in Illinois, but only within the limits of the Illinois Freedom to Work Act, as amended effective January 1, 2022. A non-compete is unenforceable for an employee whose actual or expected annualized earnings are $75,000 or less, and a non-solicit is unenforceable at $45,000 or less. Both thresholds rise on January 1, 2027.

The Act also sets process requirements. The employer must advise the employee in writing to consult an attorney before signing and give the employee at least 14 calendar days to review the covenant. The covenant must also be supported by adequate consideration, be ancillary to a valid relationship, protect a legitimate business interest and be no broader than necessary.

Covenants signed before 2022 may be judged under earlier law. Review each one before relying on it in a dispute.

What should an employment agreement say about pay and final compensation?

An employment agreement should state pay, bonus and commission terms clearly enough that both sides can calculate what is owed, including at termination. Under the Illinois Wage Payment and Collection Act, final compensation, which can include earned bonuses and accrued vacation under certain policies, must be paid on time after employment ends.

Vague bonus language is a common source of claims. If a bonus is discretionary, the agreement should say so plainly. If it is earned on a formula, the agreement should define when it is earned and whether the employee must still be employed on the payment date.

Classification also belongs in this review. Calling a role exempt in the agreement does not make it exempt from overtime under the Fair Labor Standards Act or state law. Exemption depends on duties and salary, not the label.

How should employment agreements protect confidential information?

Employment agreements should define confidential information, limit its use to the employee's work and require its return when employment ends. These clauses work alongside the Illinois Trade Secrets Act and the federal Defend Trade Secrets Act, which protect trade secrets whether or not an agreement exists.

Any agreement entered into or updated after May 11, 2016 that governs the use of trade secrets or confidential information should include the whistleblower immunity notice described in 18 U.S.C. §1833(b). Without it, an employer may lose the ability to recover exemplary damages or attorney fees under the federal Act against that employee.

Confidentiality clauses should also leave room for employees to report possible violations of law to government agencies. Overly broad language can be unenforceable and can create its own legal risk.

What happens if an employment agreement and the handbook conflict?

When an agreement and a handbook conflict, the outcome is uncertain, and employees may argue for whichever term is more favorable to them. Courts look at the specific wording, which document is more recent and whether the handbook says it is not a contract.

Handbooks are usually updated more often than agreements, which is how gaps open up. A policy revised for one reason, such as a new leave law, can quietly contradict a term in agreements signed years earlier.

The practical fix is to review both documents together. Common points of conflict include:

• Paid time off accrual and payout at termination
• Bonus and commission eligibility
• Notice periods and grounds for termination
• Dispute resolution, including arbitration
• Which document controls if they disagree

How should employers roll out updated employment agreements?

Roll out updated agreements in writing, with enough time for review and a clear record of who signed which version and when. A well-drafted agreement can still fail if the process around it is rushed or poorly documented.

For covenants governed by Illinois law, the 14-day review period and the written advice to consult an attorney are requirements, not courtesies. Employees in other states may be subject to different notice periods or delivery rules, so the rollout plan should follow the same state-by-state list used for drafting.

A practical rollout usually includes:

• A cover note explaining what changed and why
• Any consideration offered for new restrictive covenants, stated in writing
• A reasonable review period, at least the legal minimum where one applies
• Signed copies stored where HR and counsel can find them later
• A plan for employees who decline to sign

From our practice

In our work, we often see employers update their template agreement but leave older versions in force for long-serving staff, sometimes with restrictive covenants signed before the 2022 Illinois amendments. The gap usually surfaces when someone senior resigns and the company reaches for a covenant that no longer meets current rules. An inventory of who signed what, and when, tends to be the most useful first step.