Illinois continues to be an employee friendly state in some ways, including in the area of non-compete clauses. A non-compete clause, or covenant not to compete, is a provision of a contract in which one person agrees not to compete against another person or business after termination of the relationship. Employers often require employees to sign covenants not to compete as a condition of working or continuing to work for the employer.
The law has been changing in this area over the last decade in favor of the employee, and another change is coming. This time the change comes from the legislature, not the court system.
Covenants not to compete apply in different circumstances as well. For instance, when one person sells a business to another person, the buyer often wants the seller to sign a covenant not to compete so that the buyer can be assured that the seller isn’t going to open up shop across the street after the sale is completed. Covenants not to compete make perfect sense in that context. In the context of the sale of a business, both parties are operating at arm’s length. That means that both parties are entering into the relationship voluntarily and without compulsion.
In the employment context, however, the bargaining positions are often not arm’s length. For instance, an employer often will approach employees after they have already been hired and ask them to sign a covenant not to compete. What’s the employee to do? Even if the covenant not to compete is requested at the time of hiring, a prospective employee is not likely to decline because the employee is looking for work. The bargaining positions are not the same.
None of this is to say that the employers do not have legitimate concerns about employees who might leave. After they are trained and gain unique knowledge and experience, they could go and set up a competing shop or go to work with a competitor with an “unfair” advantage. Sometimes, employees take customer lists and other valuable information and use it to compete with their former employers.
The new law will handcuff employers further than they currently are in regard to covenants not to compete. Effective January 1, 2017, any “covenant not to compete” between a private employer and any of its “low-wage employee[s]” is null and void.
The Illinois Freedom to Work Act (the “Act”) defines “covenant not to compete” as any restriction on the employee: 1) working for another employer for a specified period of time; 2) working in a specified geographical area; or 3) working for another employer with similar job duties. The Act further defines “low-wage employee” as “an 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.” Since the minimum wage in Illinois is less than $13.00 dollars, this restriction will only apply to all employees making $13.00 or less.
As of January 1, 2017, any employment contract between an employee making $13.00 or less which restricts employment of the employee for a period of time, geographic location, or job duties is now illegal under Illinois law and therefore, unenforceable in a courtroom.
Since the law only applies to agreements that are effective after December 31, 2016, there is still time for some employers to enter into a covenant not to compete with its employees. Though the employer should keep in mind that it must have more than mere employment as consideration for the agreement. There must be some practical and defined information or skill which legally binds the employee to the agreement. (See Fifield v. Premier Dealership Servs., 2013 IL App. (1st) 120327, 933 N.E.2d 938 (Ill. App. Ct. 2013) (finding non-competes unenforceable unless the employee worked for the employer for at least two years or the employer offered some other valuable consideration that is tied specifically to the non-compete)).Edward J. Boula III Drendel & Jansons Law Group 111 Flinn Street Batavia, IL 60510 630-523-0543 630-406-6179 fax [email protected] Biography