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Illinois Employers Should Use Caution with Having Low-Income Employees Sign Covenants-Not-To-Compete

The unemployment rate in Illinois continues to decline, as is the case nationally. As of the time of writing this article, the state wide unemployment rate in Illinois is 4.6% and numerous experts predict that this rate will go lower as the economy continues to improve. Some cities in Illinois have unemployment rates as low as 3.4%. What this means for employers is that it may become even more difficult to fill open positions.

Many employers are reviewing their wage and benefit packages to try to retain employees. Employers are also using restrictive covenants more and more in trying to keep employees from going to other employers for higher wages and better benefits. Illinois employers need to be aware of the Illinois Freedom to Work Act (“Act”). The Act became law on January 1, 2017. The Act prohibits employers from entering into a covenant not to compete with any low-wage employee. Under the Act, a low wage employee means any employee who earns the greater of: 1) an hourly rate equal to the minimum wage required by the applicable federal, state or local minimum wage; or 2) $13.00 per hour. The Act states that a covenant not to compete entered into between an employer and a low-wage employee (an employee earning $13.00 per hour or less) is illegal and void.

Recently, the Illinois Attorney General’s office filed suit against a national chain of payday lending stores – Check Into Cash – which has thirty-three (33) locations in Illinois. The lawsuit alleges that Check Into Cash required its low-wage employees to sign non-compete agreements in violation of the Act. Last year, before the Act went into effect, the state of Illinois settled a similar lawsuit with Illinois based fast food purveyor, Jimmy Johns, which had employees sign covenants not to compete as well.

As the employment market becomes more and more competitive, employers need to take note and understand the Illinois Freedom to Work Act and determine if they are in compliance with the Act. Illinois employers need to determine if there is a real “business necessity” for entering into the covenant not to compete, such as protecting trade secrets, or if the covenant is overly restrictive and simply trying to prevent employees from leaving in an increasingly tight job market, especially for low paying jobs. Employers should seek assistance when implementing restrictive covenants to make sure the covenants are enforceable, not over reaching and in compliance with the law.

Wessels Sherman attorneys can help companies with drafting covenants not to compete, as well as other restrictive covenants (and can advise companies that already have restrictive covenants in place on whether they are enforceable and comply with the law).

If you have any questions and/or would like additional information regarding the Illinois Freedom to Work Act, please contact Attorney Joseph H. Laverty at (563) 333-9102 or via email at jolaverty@wesselssherman.com.

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