Illinois Non-Compete Ban for Low-Wage Workers Goes into Effect January 1, 2017

Illinois, Non-Compete, Illinois Freedom to Work Act

Illinois employers have a new law to be mindful of beginning this new year. That’s when the Illinois Freedom to Work Act (the “Act”) goes into effect banning the use of non-compete agreements with low-wage employees. 

The Act prohibits employers from entering into “covenants not to compete” with “low-wage employees” after January 1, 2017, and declares void any covenant entered into in violation of the Act. The new law does not apply to covenants not to compete entered into before January 1st.

The key to compliance with the Act is understanding the definitions of low-wage employee and covenant not to compete.

  • “Low-wage employee” is defined as any employee earning $13.00 per hour or less. The Act’s definition also contains a built-in escalator provision tied to the minimum wage. If the minimum wage increases to more than $13.00/hour under applicable federal, state or local law, the threshold for qualifying as a low-wage employee moves up with the minimum wage. 
  • The Act defines “covenant not compete” as an agreement that restricts the 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 similar to the work employee is performing for his or her current employer.

The Act does not apply to other types of post-employment restrictions. Illinois employers thus remain free to require low-wage employees to sign agreements not to solicit customers and agreements prohibiting employees from using or disclosing confidential information.

The use of non-compete agreements with low-wage employees has been under attack throughout the U.S. in the past year. While Illinois appears to be the first state to adopt a law outright banning non-competes for low-wage employees, there clearly is momentum nationwide towards prohibiting the use of such restrictions with minimum wage workers. Last year, a bill was introduced at the federal level to ban non-competes for workers making less than $15 per hour. A similar ban has been proposed by the Attorney General for the State of New York.

Count this as another reason why smart employers with multi-state workforces should not use non-competes with low-wage employees. Instead, employers should use the least restrictive alternative that is sufficient to protect their interests, such as a non-solicit or non-disclosure provision.

 

James Komie is an attorney with Howard & Howard in Chicago, IL. He regularly writes and speaks on new developments and trends in the law regarding non-competes and trade secrets, as well as issues relating to the financial services industry.

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