On August 19, 2016, Illinois Governor Bruce Rauner signed into law the Illinois Freedom to Work Act (the Act), which bans certain Illinois employers from entering into non-compete agreements with “low-wage employees” and declares such agreements to be “illegal and void.”
Effective January 1, 2017, the Act defines a “low-wage employee” as any employee who earns the applicable federal, state or local hourly minimum wage — e.g., currently, $7.25 per hour under federal law, $8.25 per hour under Illinois state law or $10.50 per hour in Chicago — or $13.00 per hour, whichever is greater. Thus, in practice, unless and until the hourly minimum wage is raised, the Act prohibits non-competes imposed upon employees earning less than $13.01 per hour.
Notably, the Act appears to restrict only non-competition clauses. Specifically, the Act prohibits employers from entering agreements with “low-wage employees” that would restrict these workers from performing: (1) any work for another employer for a specified period of time; (2) any work in a specified geographical area; or (3) work for another employer that is similar to such low-wage employee’s work for the employer included as a party to the agreement. The Act on its face does not prohibit non-disclosure or other confidentiality agreements aimed at protecting an employer’s confidential information, nor does it expressly apply to non-solicitation provisions that might prohibit employees from soliciting an employer’s customers or employees.
This new law closely follows the Illinois Attorney General’s recent lawsuit in June 2016 against the well-known Illinois-based franchise, Jimmy John’s, for its allegedly “highly restrictive” non-compete agreements. The sandwich shop’s non-competes effectively barred its low-wage staff from working for any other sandwich store within several miles of any Jimmy John’s nationwide that earned more than 10 percent of its revenue from selling sandwich-type products for up to two years after leaving the company. Indeed, the Act seems to directly track the lawsuit’s calls for a declaration that Jimmy John’s non-compete agreements are unenforceable and an injunction against their use.
To comport with the Act, Illinois employers should promptly review their practices to ensure that they are not requiring employees earning $13.00 per hour or less to enter into non-compete agreements. In light of the continued scrutiny of restrictive covenants by public officials, courts and other government entities, employers should also broadly review any covenants they use. In particular, employers should carefully consider the nature and extent of covenants they apply to various employee groups to ensure such covenants are appropriately tailored to protect employers’ confidential information and legitimate business interests.