November 1, 2016

Toward the end of August and with little fanfare, the State of Illinois enacted the “Freedom to Work Act,” implementing strict restrictions on the ability of Illinois employers to enter into non-compete agreements with low-wage employees. Yet the Act, totaling merely 200 words, raises as many issues as it settles. 

The Act itself is straightforward: Any non-compete agreement entered into by an Illinois employer with any of its low-wage employees after January 1, 2017, is illegal and void. Under the Act, a “low-wage” employee is defined as an employee who earns $13 per hour or the applicable federal, state, or local minimum wage, whichever is greater. A non-compete agreement is defined under the Act as any agreement that prohibits an employee from performing (1) any work for another employer (regardless of how short the duration), (2) any work in a specified geographic area (no matter how narrow), or (3) work for another employer that is similar to the work the employee is performing for the employer (regardless of whether the employee had extensive customer contact or became privy to trade secrets).

On its surface, the Act may appear unremarkable to employers. Some companies may not have a legitimate business interest in prohibiting low-wage employees, a number of whom are entry-level staff, from working for competitors after their employment ends. But the Act leaves many questions unanswered, opening the possibility of unforeseen consequences for employers. For example, the Act broadly prohibits not only post-employment restrictions on competition, but also restrictions on “any work for another employer in a specified period of time.” Accordingly, the Act seems to require employers to allow their low-wage employees to directly compete during employment. This may be the intended result of the new legislation, or it may simply be an example of sloppy draftsmanship — but in either case, the practical result may be that an employer has no recourse should a low-wage employee become employed with a competitor, whether during or after the term of the employee’s current employment relationship.

The Act does not seem to apply to other typical restrictive covenants, such as non-solicitation and non-disclosure agreements. Yet, if such agreements effectively prohibit a low-wage employee from working for a competitor, they may be interpreted as falling under the auspices of the Act. Only time — and litigation, unfortunately — will provide clarity regarding the contours of the new law.

The Act may be indicative of our state government’s view of non-compete covenants, generally. If so, it may be just the first domino to fall. With that in mind, employers should take this new legislation as an opportunity to examine non-compete agreements already in place, to assess whether they are necessary to protect legitimate business interests, whether the covenants are appropriate for the particular employees in question, and whether they are tailored narrowly enough to achieve the employer’s business goals without violating the new restrictions. 

Employers who believe that imposing non-compete restrictions on low-wage employees is truly justified should keep the effective date of the Act in sight. If a decision is made to put such agreements in place before that date, employers should ensure that such covenants are supported by adequate consideration. 

As the passage of the Freedom to Work Act clearly demonstrates, the law regarding non-compete agreements is always evolving. Employers should consult with experienced legal counsel to ensure that their current agreements comply with the new changes.

Please contact your Much Shelist attorney for more information on the implications of the Freedom to Work Act and related labor and employment issues.

This article contains material of general interest and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. Under applicable rules of professional conduct, this content may be regarded as attorney advertising.