Low-Wage Employees in Illinois Protected From Noncompetes Under New Law

On August 19, 2016, Illinois Governor Bruce Rauner signed a bill prohibiting noncompete agreements for low-wage employees. In addition to prohibiting most private-sector employers from entering into noncompetes with their low-wage employees, the Illinois Freedom to Work Act (the Act) renders “illegal and void” any “covenant not to compete entered into between an employer and a low-wage employee” after the effective date of January 1, 2017.

“Covenant Not to Compete” Defined

The Act defines a “covenant not to compete” as an agreement, entered into after its effective date of January 1, 2017, that restricts low-wage employees 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 such low-wage employee’s work for the employer included as a party to the agreement.

“Low-Wage” Defined

The Act defines “low-wage employees” to include employees who earn the greater of the two following options:

1. the minimum wage rate required by the applicable federal minimum wage law ($7.25 per hour), state minimum wage law ($8.25 per hour in Illinois), or local minimum wage law; or
2. $13.00 per hour.

“Employer” Defined

The Act uses the Minimum Wage Law’s definition of “employer” to include “any individual, partnership, association, corporation, limited liability company, business trust, governmental or quasi-governmental body, or any person or group of persons acting directly or indirectly in the interest of an employer in relation to an employee, for which one or more persons are gainfully employed on some day within a calendar year.” The Act does not apply to governmental entities.

Practical Effect

As practical matter, the Act codifies the status quo. Illinois courts have long been disinclined to enforce noncompete agreements for such workers, and practitioners often steer clear of them. But codifying the sentiment eliminates circumstances in which use of noncompete agreements could be appropriate for the low-wage employee group, e.g., employees involved in research and development.

By its terms, the Act does not apply to agreements protecting confidential information or trade secrets. It also does not appear to impact agreements prohibiting the solicitation of employees or customers. Though the courts will have to decide whether, under individualized facts, the Act could apply to such covenants if they impose a complete bar on competition.