justice scale justice scale justice scale

McKenna Minutes

“The life of the law has not been logic; it has been experience.”

-Oliver Wendell Holmes, Jr.

Employer Use of Covenants Not To Compete Threatened By New Law

-

Employees given access to the trade secrets, customer lists and other confidential materials vital to the operation of a business can easily use that information against the interests of their former employer when their employment comes to an end. Covenants not to compete have been used by businesses to protect themselves from competition from former employees.

A new employment law in Illinois limits how far businesses can go in placing restraints or limitations on a former worker’s ability to obtain employment. It might be good news for employees, but the new law could put businesses in jeopardy of having confidential information misused by former employees.

Courts sensitive to restrictions on workers

Covenants not to compete are contracts between an employer and its employees that is usually entered into at the time an individual is hired. Courts tend to scrutinize such agreements very carefully to ensure that the limitations imposed on an individual’s right to work are reasonable and serve to protect a legitimate interest of the employer. When properly drafted, covenants not to compete can be an effective method of protecting a business from financial loss.

New legislation places additional restrictions on employers

On August 19, 2016, Illinois Governor Bruce Rauner signed into law the Freedom to Work Act that prohibits employers in the state from entering into covenants not to compete with low-wage employees. The law defines a covenant not to compete as an agreement between an employer and a low-wage employee that restricts the employee from doing any of the following:

  • Performing any work for another employer for a specified period of time
  • Performing any work in a specified geographical area
  • Performing work for another business or entity that is similar to the employee's work for his or her employer

The law takes effect on January 1, 2017 and will only change employee policies and procedures pertaining to covenants not to compete that are signed after that date. Agreements signed prior to the effective date are unaffected by the new law.

Application of the new law and what it means to employers

The Freedom to Work Act defines “low-wage employee” as an employee who earns the greater of the hourly rate equal to the minimum wage required by the applicable federal, state or local minimum wage law or $13.00 per hour.  Current minimum wage laws in Illinois effectively place every employee who makes $13.00 or less an hour under the protection of the new law.

The new law is silent with respect to employees who make more than $13.00, but the courts will look closely to many factors before enforcing any covenant not to compete. Business owners and managers should seek legal advice regarding the use of covenants not to compete as part of their employee policies and procedures to protect themselves from workers who might disclose or use confidential information

Any covenant not to compete, as with all employment contract provisions, should be carefully written and reviewed by an attorney familiar with current employment law in Illinois. For additional information about this topic, contact Kristin Dvorsky Tauras at McKenna Storer.

Categories Employment Law



Here to help with whatever your legal issues may be, schedule your no-obligation consultation or Simply Call us at.
(815) 334-9694

Please do not send confidential information via email. The sending of information by you, and the receipt of it by McKenna Storer, is not intended to, and does not create a lawyer-client relationship.

Privacy Policy | Sitemap © 2019 McKenna Storer
Show Buttons
Hide Buttons