16 June 2017
16 June 2017,
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Illinois Non-Compete Law

Non-compete agreements in Illinois drew national attention in 2016. The state’s attorney general sued Jimmy John’s over non-compete agreements that it required of its sandwich makers and delivery drivers. Employees were required to sign the documents, which prevented them from working for a similar establishment for two years after leaving the company. An eventual settlement rendered the agreements void.

Non-compete agreements limit the scope of future employment once a person leaves a company. Typically, these apply to C-suite executives, highly compensated sales professionals and others who could use proprietary or confidential information from their previous employer against it in a new, competing role.

However, some may be surprised to learn that, such as in the case of Jimmy John’s, many low-wage workers are also expected to sign non-competes. Even online shopping giant Amazon required non-compete agreements of many warehouse workers, but ended the practice just days after it was made public in 2015.

These cases demonstrate the damage that can result when non-compete agreements are poorly constructed or applied. It’s important for employers to understand what a non-compete agreement can and should cover, and for employees to know when their rights are being infringed.

Non-Compete Agreement Laws

In general, laws governing non-compete agreements in Illinois work to balance the needs of an employer to protect its business interests against the ability of an employee to find work in their chosen field. The most basic criteria were upheld in a 2011 Illinois Supreme Court ruling, Reliable Fire Equipment v. Arredondo. In it, the court reaffirmed a three-part test that states a “reasonable” non-compete agreement:

(1) is no greater than is required for the protection of a legitimate business interest of the employer-promisee;

(2) does not impose undue hardship on the employee-promisor, and

(3) is not injurious to the public.

Beyond these criteria, a 2015 Illinois Appellate Court ruling in Fifeld vs. Premier Dealer Services further defined application of non-compete clauses. Though some courts have declined to follow the decision, the Fifeld court determined that 24 months of continuous at-will employment are required to trigger enforceability of a non-compete clause, unless the employee receives some sort of compensation for signing the agreement. For example, if a person signs a non-compete agreement without compensation, then leaves for a competitor after 18 months, the non-compete agreement may not be enforceable.

Illinois Freedom to Work Act

To further protect low-wage workers, like those in the Jimmy John’s case, Illinois Gov. Bruce Rauner signed the Illinois Freedom to Work Act in 2016. Taking effect in 2017, the law prohibits applying “covenant not to compete” agreements on anyone earning 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.

These laws appear to be gaining favor around the nation. Other states have considered or passed legislation similar to Illinois, while California, North Dakota and Oklahoma have all but banned non-competes.

General Considerations 

Every situation is unique, but some general guidelines apply to virtually all employers and employees considering non-compete or non-solicitation agreements.

For employers:

  • agreements should be tailored to protect legitimate business interests;
  • whether agreements will be enforced is still ambiguous, so exercise caution in sharing truly important information absent offering specific inducements to sign the non-compete agreement (e.g., a raise, a signing bonus, etc.).

For employees:

  • investigate whether non-compete/non-solicitation agreements will be required as a condition of employment prior to accepting a new position;
  • if asked to sign an agreement while employed, consider long-term implications on your career before signing and, if necessary, should attempt to negotiate terms that are more fair or favorable to you. 

Contact an Experienced Chicago Employment Attorney

If you are an employer considering a non-compete clause in Illinois, or if you are an employee being asked to sign one, consider contacting The Wood Law Office, LLC for help in understanding how the laws apply specifically in your case.

 

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