Illinois Freedom to Work Act – No Non-Compete Agreements for Low Wage Workers

September 26, 2016 / News

Illinois recently enacted the “Freedom to Work Act”, effective for agreements entered into on or after January 1, 2017.  This Act prohibits non-governmental employers from entering into non-compete agreements with low wage employees.

Low wage employees are defined in the Act as those employees who earn less than the greater of (1) the hourly rare equal to the minimum wage required under applicable federal, state of local minimum wage law; or (2) $13.00 per hour.

Covenants not to compete (also referred to as “non-compete agreements”) are defined by the Act as agreements:

1.  Between an employer and a low-wage employee that 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 geographic 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; and

2.  Entered into after January 1, 2017.

All such non-compete agreements are rendered “illegal and void” by the Act.  The Act does not apply to customer non-solicitation provisions and non-disclosure agreements.

The Act comports with Illinois case law on non-compete agreements.  While Illinois cases are very fact dependent, in general, non-compete agreements must be reasonable in the following ways:

1.  it is no greater than is required for the protection of a legitimate business interest of the employer;

2.  does not impose an undue hardship on the employee; and

3.  is not injurious to the public.

Additionally, the extent of the employer’s legitimate business interest may be limited by type of activity, geographical area and time.  (See Reliable Fire Equip. Co. v. Arrendondo, 965 N.E.2d 393 (2011).)

However, impact of the Act remains to be seen, as it explicitly only applies to low wage employees, and those are not the typical employee that execute a non-compete agreement.  Regardless, employers should use the Act as a tool to revisit their non-compete agreements to insure that they are narrowly tailored in compliance with Illinois law.

For more information contact Paul Daugherity (pdaugherity@clausen.com).

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