Illinois Law Bars Non-Competition Agreements with "Low-Wage Employees"

On January 1 of this year, the Illinois Freedom to Work Act went into effect. The new law prohibits private sector employers from entering into covenants not to compete with "low-wage employees," employees who earn the greater of the applicable hourly minimum wage (currently $7.25 per hour under federal law, $8.25 per hour under Illinois law, and $10.50 per hour under the City of Chicago Minimum Wage Ordinance) or $13.00 per hour. Thus, unless and until the minimum wage is increased above $13.00 per hour, the Act prohibits employers from entering into covenants not to compete with employees who earn $13.00 per hour or less.

The Act's definition of "covenant not to compete" includes any agreement entered into after January 1, 2017 that restricts the employee from performing: (a) any work for another employer for a specified period of time; (b) any work in a specified geographical area; or (c) work for another employer that is similar to the employee's work for the employer. The Act states that any such covenant not to compete between an employer and a low-wage employee is "illegal and void."

The new law comes on the heels of a June 2016 lawsuit filed by the Illinois Attorney General against Jimmy John's Enterprises LLC, alleging that Jimmy John's imposed highly restrictive non-competition agreements on its employees, including low-wage sandwich shop employees and delivery drivers. As part of the December 2016 settlement of that suit, Jimmy John's agreed to cease using such non-competition agreements and notify all current and former employees that their non-competition agreements were unenforceable.

To ensure compliance with the Illinois Freedom to Work Act, Illinois employers should review their practices to confirm they are not requiring employees earning $13.00 per hour or less to enter into non-competition agreements. The Act, however, does not prohibit employers from requiring employees to execute non-disclosure or other confidentiality agreements aimed at protecting an employer's confidential information, nor does it expressly apply to non-solicitation agreements that prohibit an employee from soliciting an employer's customers or other employees.

For more information on the Illinois Freedom to Work Act or other employment matters, please contact Liz Pall at 312.840.7099 or epall@burkelaw.com.