Effective January 1, 2017, private sector employers in the state of Illinois will be barred from entering into covenants not to compete with low-wage employees. Any covenants not to compete entered into between an employer and a low-wage employee will be deemed "illegal and void."
The new law, known as the Illinois Freedom to Work Act, was signed by Governor Bruce Rauner on August 19, 2016. It comes on the heels of a June 2016 lawsuit by Illinois Attorney General Lisa Madigan against popular Champaign-based sandwich maker Jimmy John's for its use of covenants preventing its former low-wage employees from working at nearby competitors. The Illinois case is still active, but relatedly, New York Attorney General Eric Schneiderman and Jimmy John's, in a similar challenge to the company's noncompete agreements, reached a settlement in June 2016 whereby Jimmy John's New York franchisees agreed to stop including the covenants in their hiring materials.
The types of agreements covered by the Illinois Act are those prohibiting an employee from (a) performing work for a specific period of time; (b) working in a specific geographical area; or (c) engaging in similar work for another employer. The Act defines a low-wage employee as an employee earning the greater of (1) the local, state or federal minimum wage; or (2) $13 per hour—which means that, until hourly minimum wage rates exceed $13, employers may not restrict employees paid $13 or less per hour from competing against them after the employment relationship ends.
The law will apply to covenants entered into after January 1, 2017. It will not, however, apply retroactively to covenants already in place with low-wage employees. The law also does not expressly apply to non-solicitation agreements between employers and low-wage employees.
The Illinois law is part of a national legal trend towards greater protection for low-wage employees and against the burdensome noncompete covenants frequently required of them. New Jersey, Maryland, Washington, Oregon, and Idaho are among the states that have taken action, or attempted to take action, to limit the reach of such noncompetes. The Obama administration has also been critical of the execution of noncompetes with low-level employees.
Although the Illinois Freedom to Work Act does not apply retroactively, Illinois employers should review their hiring practices and remove—in anticipation of January 1 and in consideration of the national movement away from such provisions—any terms requiring employees making less than $13 per hour to enter into noncompete agreements.