The Illinois Freedom to Work Act went into effect on January 1, 2017 (820 ILCS 90). The Act is said to have been passed in response to Jimmy John’s requiring employees to sign non-compete agreements that restricted the employees from being employed at businesses located with 2 or 3 miles of Jimmy John’s locations if the business obtained more than 10% of their revenue from the sale of menu items similar to the Jimmy John’s menu items.
The new Act prohibits an employer from entering into a covenant not to compete with any “low wage employee.” “Low wage employee” is defined by the Act as an employee who earns the greater of the minimum wage required by law or $13 per hour. “Covenant not to compete” is defined under the Act as an agreement between an employer and a low wage employee that restricts the employee from (i) working for another employer for a specified time; (ii) working in any specified geographical area; or (iii) performing work for another employer that is similar to the work the employee performs for the current employer.
Employment covenants not to compete are used by business owners to protect confidential and proprietary information that employees may have access to while employed by the business. They prohibit an employee from learning the business’ confidential and proprietary information and then going to work for a competitive business, presumably using the confidential and proprietary information learned from the first employer. These employment covenants not to compete are especially common with franchised businesses as the independent franchise owner may be required by the franchise agreement with the franchisor to have certain employees sign covenants not to compete. It is not unusual for a franchise agreement to contain provisions requiring the franchisee to have its employees who receive training from the franchisor and/or who have access to the franchisor’s confidential information to sign covenants not to compete and to deliver copies of the signed agreements to the franchisor for the protection of the franchisor’s confidential and proprietary information.
The Act does not apply to any covenants not to compete signed prior to January 1, 2017. The Act does not provide for any specific penalties against the employer for violating the Act, but states that any covenant not to compete entered into in violation of the Act is illegal and void.
Franchisees located in Illinois should stop requiring employees who are considered low wage employees under the Act to sign a covenant not to compete even if there is a requirement in their franchise agreement to have these employees to sign such a covenant. Illinois franchisees should make sure that their franchisor is aware of the Act. Although the franchise agreement may require a franchisee to get a signed covenant not to compete from an employee, the franchise agreement is also likely to require that the franchisee comply with all applicable laws. Franchisors with franchisees located in Illinois who require that certain of franchisee’s employees sign covenants not to compete should be aware of this new Act and not enforce an obligation to secure signed covenants not to compete from any low wage employees.
UPDATE: On October 25, 2017, the Illinois Attorney General sued Check Into Cash Illinois LLC in state court alleging that the company makes low-wage employees enter into non-complete agreements in violation of the Illinois Freedom to Work Act. Check Into Cash Is one of the largest payday lenders in the U.S. with over 1,000 locations, including 33 in Illinois. The Illinois Attorney General is seeking to preclude Check Into Cash from using these non-compete agreements and is seeking a $50,000 penalty per violation for acts deemed unlawful with the intent to defraud.