Sep 27, 2016

Illinois to prevent employers from using non-compete agreements with low-wage employees

Starting January 1, 2017, no private Illinois employer may require its low-wage employees to enter into non-compete agreements.

What is a non-compete agreement?

In the employment context, a non-compete agreement is a document presented by an employer to its employee to restrict the employee from working for a competing company during and after his employment. The new law will prohibit an employer from requiring its low-wage employee to sign a non-compete agreement that restricts the employee from employment from (1) working for another employer for a specified period of time; (2) working in a specified geographical area; or (3) providing work for another employer that is similar to the work the low-wage employee is providing for the current employer.

For instance, if an employee is working as a sandwich artist at a Loop sandwich shop for minimum wage, after January 1, 2017, his employer will not be allowed to require him to sign an agreement that would restrict him from working for a different sandwich shop owner, working for any other employer for a set period of time or from working for any other employer in the Loop.

What about confidentiality agreements or agreements prohibiting the non-solicitation of customers/clients or employees?

Often employers share information, even with low-wage employees, that they consider confidential and proprietary. This new law will not prohibit employers from requiring their employees, including their low-wage employees, from promising to keep confidential that information. In addition, employers spend a lot of money and time building their customer and employment relationships. This new law does not prohibit an employer from requiring its low-wage employees from promising not to solicit customers, clients or employees.

Who is a low-wage employee?                                                              

A low-wage employee is defined by the new law. It is all private employees who earns the greater of (1) the applicable federal ($7.25/hour), Illinois ($8.25/hour) or local ($10.50/hour in Chicago) hourly minimum wage; or (2) $13.00/hour. This new law does not apply to state or governmental employees.

What happens to pre-2017 agreements?

The new law applies only prospectively. It only applies to agreements presented to low-wage employees on or after January 1, 2017. It has no impact on any agreement signed between employers and low-wage employees prior to January 1, 2017.

Who enforces the new law?

The new law does not say who will be responsible for enforcing it. It simply provides that any agreement signed in contravention of this law will be rendered “illegal and void.”

What penalties are available?

The new law does not provide any penalties for its violation. It also does not provide a private right of action or for the recovery by the prevailing employee of his or her costs or reasonable attorneys’ fees.

Need more information?

All employers should take a careful look at their hiring packages and the documents they ask new employees to sign. If they include confidentiality, non-solicitation and non-competition agreements, employers should consider whether those provisions are necessary for all employees. If an employee is earning an hourly rate of $13.00/hour or less, any post-employment non-compete covenants will not be enforceable if signed after January 1, 2017.

Should you have further questions or would like to discuss your current hiring packages, please contact one of Chuhak & Tecson’s Employment attorneys.

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.

Client alert authored by: Jeralyn H. Baran, Principal