Tuesday, September 13, 2016

Do You Use Non-Compete Agreements? Take Note of this New Law

Last month, Governor Bruce Rauner signed into law the Freedom to Work Act. The law makes it illegal for an employer to enter into a non-compete agreement with a low-wage employee. It defines low-wage employee to be any employee making either minimum wage or less than $13 an hour. 

The law defines a non-compete agreement to be any agreement prohibiting an employee from working:

1. for another employer for a specified period of time;

2. in a specified geographic area; or

3. for another employer who does similar work to that done by the employee’s current employer.

The law takes effect on January 1, 2017, and only applies to non-compete agreements entered after that date. 

Non-compete agreements have come under fire recently. A 2013 Illinois appellate court decision criticized employer use of non-compete agreements and made them more difficult to enforce. The White House recently commissioned a study of non-compete agreements that criticized the way in which they are often used. 

As we have reported, certain employers require all of their employees to enter non-compete agreements, even if the employees only make sandwiches. Such a practice, which has been disfavored by courts, could now be illegal. It is likely that employers who require all of their employees to enter into non-compete agreements do not seek to enforce these agreements, but seek to use them as a disincentive to employees leaving. Doing this is illegal, and could subject employers to punitive damages.  

While employers should not require all employees to enter into non-compete agreements, there is no question that these agreements are vitally important in regards to certain employees. Courts in Illinois disfavor non-compete agreements, so they must be drafted in a way that a court will not invalidate. Employers probably should consult an attorney before entering into a non-compete agreement. Contact me (mdicianni@ancelglink.com; 312.604.9125) if you have questions about your non-compete agreements.