SPRINGFIELD – A new law prohibiting non-compete agreements for low-wage earners has been signed into law by Illinois Gov. Bruce Rauner.
The law, known as the Illinois Freedom to Work Act, will go into effect on Jan. 1 and will effectively prohibit the use of non-competes for employees who earn $13 an hour or less. Under the Illinois Freedom to Work Act, it any non-compete agreement in place with an employee of this nature will be considered illegal and void.
Under the act, an employee can’t be restricted from working for another employer for any amount of time, stopped from working in any geographic area or banned from working for a similar employer. The matter came to the fore amid litigation launched by Illinois Attorney General Lisa Madigan against sub sandwich chain Jimmy John's over its use of such employee agreements.
The use of non-competes has come under fire recently, and Kevin M. Cloutier, partner at Sheppard Mullin, told the Cook County Record that even without the law in place, such agreements are in most instances not enforceable.
“It probably wouldn’t be enforceable even before the statute, but I think the reason they put it in place was those agreements can have a chilling effect on employees,” said Cloutier. “Even if the company can’t enforce it or doesn’t intend to enforce it, the employee still thinks they signed a non-compete and it prevents them from going to work for another sandwich maker, and that will unnecessarily restrict their mobility.”
The Illinois Freedom to Work Act only targets low-wage earners, making non-competes still enforceable for higher-paid employees.
“It really doesn’t change the other considerations that go into analyzing whether a non-compete is enforceable for other employees,” said Cloutier. “It’s just this specific subset.”
Cloutier recommends that all employers take this opportunity to review their use of restrictive covenant agreements and consider using a tiered or measured approach that takes into consideration the level of employee and their information access.
“I think the better practice is to really look at what needs to be protected, and this tiered approach makes sense for most employees,” Cloutier said. “Not every employee at a company is on the same level and has access to the same information that needs to be protected.”
With the passing of the Illinois Freedom to Work Act, employers may be opening themselves up to litigation if they don’t act in accordance with the law and make changes to their restrictive covenant agreements. Cloutier suggests that these agreements be drafted carefully and used appropriately to avoid litigation.
“If companies don’t change their practice or revoke or limit their use of non-competes for low-wage earners they could certainly be subject to some declaratory judgment action or perhaps scrutiny from the Illinois attorney general,” he said.
For all employers, now is the time to do an audit of their workforce and the agreements they have in place with their employees, he said.
“What I tell them is do a relatively basic audit of the use of their restrictive covenants,” Cloutier said. “Just match up your use of these agreements with the different levels of your employees and ask the simple question: 'Do I really need this level of protection for this level of employee?'"