Illinois Employers: Your Old Separation Agreement Could Be Illegal on Jan. 1 (Here’s What Must Change Now)

Effective January 1, 2026, IL employers must revise employment and separation agreements to comply with HB 3638, signed into law on August 15, 2025. To comply with HB 3638, Illinois employers must take several proactive steps to update their employment and separation practices. Employers are required to review and revise employment agreements, severance agreements, and separation agreements to ensure any restrictive covenants or post-employment obligations comply with the new statutory standards. This includes confirming that restrictive provisions are narrowly tailored, job-related, and supported by adequate consideration, and that they meet updated enforceability requirements under Illinois law.

Key Changes:

• Broader Protected Activity:
  • Employees, former employees, and applicants cannot be forced to waive rights to report unlawful practices or engage in concerted workplace activity. Such contract terms are void.

• Agreements cannot:
  • Shorten legal time limits,
  • Apply non-Illinois law to Illinois claims,
  • Require out-of-state legal venues.

• Waivers must be:
  • In writing,
  • Supported by consideration,
  • Preserve rights to report misconduct and engage in future concerted activity.

• Separation Agreements:
  Confidentiality clauses are allowed but must:
  • Reflect the employee’s preference,
  • Include separate consideration,
  • Preserve future claims,
  • Offer a 21-day review and 7-day revocation period.

• Increased Legal Exposure:
  Employees who successfully challenge unlawful agreements may now recover consequential damages, attorney’s fees, and costs, increasing litigation risks for employers.