Starting January 1, 2017, the new Illinois Freedom to Work Act will prohibit private sector employers from entering into covenants not-to-compete with “low-wage employees” who work in the state, and render unenforceable any such restrictions that are entered into on or after that date.
The Act defines a “low-wage employee” as one who earns the greater of $13.00 per hour or the minimum wage required by applicable federal, state, or local law. As of January 1, 2017, that would include any private sector employee in Illinois who is paid $13.00 per hour or less.
The Act defines a “covenant not to compete” as an agreement between an employer and a low-wage employee entered into on or after January 1, 2017, that restricts the employee from performing any work for another employer for a specified period of time, any work in a specified geographical area, or work for another employer that is similar to the employee’s work for the employer that is a party to the agreement. The Act thus appears limited to non-competes rather than barring covenants not to solicit customers or employees, or confidentiality agreements.
Part of a Growing Trend
The Act reflects a noticeable trend at the state and federal levels in favor of promoting the mobility of low-wage workers and preventing potential abuse of noncompete agreements. For example, several state attorneys general, including those of Illinois and New York, have sued or pressured restaurant franchisors and other employers to eliminate noncompetes for low-wage workers. Just last month, the White House called on Congress to ban noncompetes for such employees and encouraged states to do the same, while improving the transparency and fairness of noncompetes for other employees, a statement that garnered support from elected officials in Illinois, New York, Connecticut, Utah, and Hawaii.
Although the recent election means that Republicans will control both the White House and Congress come January, it is worth noting that the Act was signed by a Republican governor, and that state legislatures are likely to remain active in restricting noncompetes. For example, Oregon prohibits noncompetes with employees whose annual gross salary is less than the median family income for a four-person family as determined by the Census Bureau, using the most recent year available when an employee is terminated. And earlier this year, Connecticut and Rhode Island imposed new restrictions on noncompetes for physicians, while New Mexico prohibited noncompetes for health care workers.
Next Steps for Employers
Private sector employers in Illinois should no longer enter into noncompetes with low-wage employees and, in the interest of equitable treatment, should consider removing such restrictions from any such employees already subject to them. As always, moreover, employers should ensure that any restrictive covenants they require an employee to sign are supported by adequate consideration (which, in Illinois, may mean more than simply obtaining or continuing employment-at-will), carefully tailored to the employee’s position rather than mere boilerplate, and written no more broadly than necessary to protect legitimate interests recognized by the courts.