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September 2016

New Illinois Law Renders Illegal and Void Non-Competition Agreements for Low-Wage Employees

It may be short and to the point, but a recently-enacted Illinois law will have a widespread and massive effect on business relations and employment practices.  On August 19, 2016, Illinois Governor Bruce Rauncer signed into law the Illinois Freedom to Work Act, which effectively limits private sector employers from requiring their employees to enter into non-competition agreements.  Once the Act goes into effect on January 1, 2017, all private sector employers will be prohibited from entering into a “covenant not to compete” with any “low-wage employee.”  A “low-wage employee” is explicitly defined as any employee who earns the greater of $13.00 per hour or minimum wage required by the applicable federal, state, or local minimum wage law.  Thus, the Act prohibits non-competition covenants to be imposed upon any employee earning less than $13.01 per hour.

A “covenant not to compete,” on the other hand, is broadly defined and will undoubtedly become a subject of much future litigation.  These covenants include any agreement, entered into on or after January 1, 2017, which restricts the low-wage employee from performing (A) any work for another employer for a specified period of time; (B) any work in a specified geographical area; or (C) work for another employer that is similar to such low-wage employee’s work for the employer included as a party to the agreement.  All such covenants will be deemed “illegal and void.”

In light of this new law, any and all private sector companies that require blanket restrictive covenant agreements of all new employees, regardless of wage level, should reevaluate their practices and specifically omit this requirement with respect to low-wage employees.  The Act is notably silent on solicitation agreements and whether private employers can require low-wage employees to sign non-solicitation restrictive covenants.  Further, the Act makes no mention of other post-employment restrictions, such as confidentiality or non-disclosure agreements.  With these obvious omissions, employers must remember that courts may still uphold agreements that are reasonable in scope and which serve to protect a legitimate business interest.  In other words, it is important for each employer, before requiring an employee to sign any form of a restrictive covenant, to carefully consider whether that specific individual has access to and knowledge of any protectable business interests, such as confidential trade secrets and client or customer information.  If not, a restrictive covenant foisted upon a low-wage employee, even if not explicitly covered by the Freedom to Work Act, may become the subject of future litigation.  Unfortunately, as with many new and broadly-written laws, the true scope of the Act will be determined with time.

To read the Illinois Freedom to Work Act, please click here.

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Employment Law

Patrick F. Moran

Employment Law