By: Robert G. Cooper
As of January 1, 2017 it is no longer legal for an employer to enter into a restrictive covenant not to compete with a “low wage” employee in Illinois. The Illinois Freedom to Work Act (the “IFWA”) passed through the Illinois legislature as Public Act 099-0860, and after two amendments, was signed into law by Governor Rauner on August 19, 2016.
The new law defines a “covenant not to compete” as an agreement between employer and employee that prevents the low-wage employee from: performing any work for another employer for a specified period of time; performing any work in a specified geographic area or working for another employer that is similar to such low-wage employee’s work for the present employer.
The IFWA defines “Employer” the same way as the Illinois Minimum Wage Law, which is say, extremely broadly. An Employer for the purposes of the Illinois Freedom to Work Act (and the Illinois Minimum Wage Act) is “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.” It is hard to envision any employer that would not fall within the scope of this definition and thus under the jurisdiction of the IFWA.
A low wage employee for the purposes of the IFWA is any employee who earns the greater of (1) the hourly rate equal to the minimum wage required by the applicable federal, State, or local minimum wage law or (2) $13.00 per hour.
In sum, the new law prevents virtually all Illinois employers from restricting the future employment of its lowest paid workers. The IFWA is unlikely to have a wide-reaching impact, as it is uncommon to require a low-wage employee to enter into any kind of employment contract, let alone one containing restrictive covenants.
Infrequency not-with-standing, employers, who via the nature of their businesses, provide low level employees with training that may be portable to a competing company, must now consider other avenues to prevent those employees from taking their newly acquired skills to a competitor.
One type of restrictive covenant notable by its absence from the IFWA is non-disclosure agreements. Employers exposing low-wage employees to confidential information can (and should!) require that all such employees enter into a non-disclosure agreement whereby that employee promises to preserve the confidentiality of the employer’s information. Importantly, the non-disclosure agreement should be careful not to infringe on the low-wage employees ability to work for a competitor or it will run afoul of the IFWA. As with all non-disclosure agreements, such an agreement should be narrowly tailored to the specific confidential information the employer seeks to protect. Agreements that define confidential information too broadly will be unenforceable. Additionally, the employer must take active steps and implement policies to protect the confidential information if they later hope to enforce such an agreement.
If you have any questions or concerns regarding the IFWA or how it may affect your business, please contact:
Robert G. Cooper at:
email@example.com or (312) 368-0100.