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Beginning January 1, 2026, Illinois employers will face expanded obligations as a result of amendments to the Illinois Workplace Transparency Act ("IWTA" or "Act") following the enactment of House Bill 3638. The amendments, which Governor JB Pritzker signed into law on August 15, 2025, significantly broaden protections for employees and impose new requirements and restrictions on settlement and termination agreements. These amendments apply to any employment contract entered into, modified, or extended on or after January 1, 2026, with the exception of collective bargaining agreements covered by federal or Illinois public labor statutes. The most impactful amendments to the IWTA are summarized below.
Scope of Coverage Under the Amended Act
The 2025 amendments do not modify the definitions of "Employee" and "Employer" in the Illinois Human Rights Act ("IHRA"). The Act continues to apply to employers with one or more employees in Illinois who are employed for 20 or more weeks during a calendar year. Employees are broadly defined to include individuals providing services for remuneration within the state, and the Act's coverage also extends to contractors and consultants engaged under contract.
Expanded Definition of Unlawful Employment Practice
The 2025 amendments significantly expand the definition of an "unlawful employment practice." Previously, the Act limited an "unlawful employment practice" to discrimination, harassment, or retaliation. But beginning January 1, 2026, an "unlawful employment practice" means and includes any unlawful practice actionable under federal or state employment law, including those enforced by the Illinois Department of Labor, the Illinois Labor Relations Board, the U.S. Department of Labor, the Occupational Safety and Health Administration, or National Labor Relations Board.
Additional Protection for Concerted Activity
The amendments create express protections for "concerted activity," which includes collective bargaining, participation in labor organizations, and efforts to address workplace issues such as wages or benefits. Employers may not prohibit, prevent, or other otherwise restrict an employee's right to engage in concerted activity to address work-related issues through employment agreements or contracts.
New Requirements for Certain Confidentiality Clauses
As a result of the amendments, the Act imposes new requirements for settlement and termination agreements with confidentiality provisions "related to alleged unlawful employment practices." Due to the aforementioned expansion of what constitutes an "unlawful employment practice," these changes could impact virtually any settlement/termination agreement pertaining to an employment dispute. Any confidentiality provisions in qualifying agreements must now be supported by distinct, bargained-for consideration that is separate from the consideration provided in exchange for the employee's release of claims. Additionally, employers may not incorporate any clause indicating that confidentiality is the employee's preference unless it is documented, nor may an employer impose such language unilaterally. Confidentiality provisions also cannot restrict current or future concerted activity related to workplace conditions.
Restrictions on Statute of Limitations, Venue, and Choice of Law Provisions
Under the amendments, employment contracts may not unilaterally shorten the applicable statute of limitations, apply non-Illinois law to Illinois-based claims, or require adjudication of Illinois claims outside the state if doing so deprives the employee of any substantive or procedural right or remedy related to unlawful employment practices. These amendments will have significant implications on choice of law and venue provisions in employment contracts. Among other things, the amendments require employers to ensure that employees—including those working remotely for an Illinois employer—retain their rights under Illinois law and have the ability to litigate claims within the state.
In limited circumstances, however, the Act still allows these employer-friendly terms to be included in employment contracts. The aforementioned provisions may be included if they are: (i) "mutual;" (ii) in writing; (iii) demonstrate actual, knowing and bargained-for consideration; and (iv) acknowledge the employee's right to report unlawful and criminal conduct to any appropriate federal, state or local government agency. In addition, the agreement must also expressly acknowledge the employee's right to participate in proceedings related to unlawful employment practices, including any litigation brought by any government agency, to make truthful statements or disclosures required by law, and to engage in concerted activity to address work-related issues.
Expanded Rights to Testify and Participate in Proceedings
The amended Act expands testimonial rights in disputes involving alleged unlawful employment practices. Employees, prospective employees, and former employees are permitted to testify not only in administrative, legislative, or judicial proceedings concerning alleged criminal conduct or unlawful employment practices, but also in arbitral proceedings when required by a court order, subpoena, or written request from an administrative agency or the legislature. The Act further clarifies that employees may participate in depositions in any of these proceedings.
Additional Damages
As a result of the amendments, employees, prospective employees, and former employees who successfully challenge a contract that violates the Act—or who successfully defend against a claim for breach of a confidentiality agreement under the Act—may recover consequential damages in addition to reasonable attorney's fees and costs. Consequential damages mean and include indirect, but reasonably foreseeable, losses that flow from a contractual breach. In this context, consequential damages might encompass such things as lost earnings or other economic harm. Thus, employers should be mindful of expanded damages theories by employees bringing or defending qualifying actions.
Key Takeaways for Employers The amendments to the IWTA significantly expand protections for employees and impose additional requirements on termination and settlement agreements entered into, modified, or extended from January 1, 2026 onward. Illinois employers should take steps to ensure compliance with the amended Act, including reviewing and updating their template agreements and ensuring that contract language aligns with the new legal standards. As always, Sheppard Mullin is available to provide guidance and support to employers as they adapt to these new requirements.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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