Illinois Law Effective January 1, 2017 Bars Certain Non-Competes

By: Shelbie J. Byers, Drewry Simmons Vornehm, LLP

Many national employers or employers with operations in more than one state must be mindful of employment law compliance of not only all applicable federal employment laws, but must also comply with all state and local laws for each jurisdiction in which the employer has operations.  Thus, using a single form non-compete, employment agreement or even employee handbook may need to have addendums or carve out provisions depending on state and local laws.  Recent employment law changes in Illinois, effective January 1, 2017, make certain non-competes no longer enforceable.  Thus, if you are a business with operations or employees in Illinois and have employees signing non-competes – read on!

Under the Illinois Freedom to Work Act, which became effective January 1, 2017, employers are barred from entering non-compete agreements with low wage employees, and provides that any non-competes in violation of the act are “illegal and void.”  The Illinois Freedom to Work Act defines “low wage employees” as any employee earning minimum wage under federal, state, or local wage laws, or $13.00 per hour, whichever is greater.  Currently federal minimum wage is $7.25 per hour.  Illinois minimum wage is $8.25, and $10.50 in Chicago.  As a reminder, Cook County Illinois has a minimum wage increase to $10.00 per hour taking effect July 1, 2017, which is an increase above the state law minimum and Chicago’s next minimum wage increase is set to take effect on July 1, 2017 to $11.00. 

As written, the law only applies to non-compete agreements and does not apply to other restrictive covenants such as non-solicitation, anti-raiding and or trade secrets provisions often found in conjunction with non-compete agreements.  The law defines a “covenant not to compete” as an agreement restricting “(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 such low-wage employee’s work for the employer included as a party to the agreement; and (2) that is entered into after the effective date of this Act.”

To comply with the Illinois Freedom to Work Act, Illinois employers should ensure that going forward, employees earning less than $13.01 per hour are not subject to a non-compete agreement in Illinois.  This is particularly important to employers who may have used form agreements across their operations from state to state and will now need to reconsider such agreements for lower wage employees in Illinois.  Of course, employers are also required to comply with all state statutes and case law which tend to narrowly construe restrictive covenants to ensure that they are not overbroad in terms of time, scope and geographic reach.