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New Illinois law prohibits non-competition agreements with low-wage employees

Susan Lorenc September 13, 2016

In a rare move, the Illinois legislature has enacted new legislation establishing a clear rule invalidating non-compete agreements for certain employees. Effective January 1, 2017, employers are prohibited from entering into non-compete agreements with Illinois employees who earn $13 an hour or less. 

The “Illinois Freedom to Work Act” (S.B. 3163) applies to “low-wage employees,” i.e., those who earn not more than $13 an hour or the applicable federal, state or local minimum wage (whichever is greater). Since the federal, Illinois and Chicago minimum wage laws are all less than $13 an hour, the law as a practical matter only covers employees who earn no more than $13 an hour. 

The law makes “illegal and void” any agreement entered into, on, or after Jan. 1, 2017 that prevents a “low-wage employee” from:

  • Working in a specified geographic area; 
  • Working for another employer for a specified time; or  
  • Working for another employer that is similar to such low-wage employee’s work for the employer included as a party to the agreement. 

While the law does not expressly apply to agreements to protect confidential information, or not solicit customers or employees, or to agreements executed before Jan. 1, 2017, low-wage earners might argue that its rationale still applies, because the law shows a public policy that the restrictions unduly burden them. Therefore, if your company has post-employment competition restrictions with low-wage earners, you should seek legal guidance on the enforceability of those covenants going forward and possible alternatives.