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Illinois Freedom to Work Act – Another Problem for Employers

The Illinois Freedom to Work Act, which prevents non-governmental employers from requiring that low-wage employees enter into non-compete agreements, has begun to impact case law in the past three years since it was enacted. Employers would be wise to take note.

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The act, which defines “low-wage employees” as those earning the greater of $13 per hour, or the federal, state or local minimum wage, pushes back against employers who insert such agreements into new employee packets as a matter of course.

The thinking behind the Freedom to Work Act is that an employer has no legitimate business interest in restricting the movement of an employee like a janitor or a restaurant cashier, who would be unlikely to know trade secrets or other proprietary information. And yet, a non-compete would severely restrict their ability to find a new job.

The first defendant under the new law was a national check cashing and payday loan provider called Check Into Cash. Many of the company’s employees earn close to minimum wage, handle tasks like data entry, and have a high school education or less—and yet they had been required to sign non-compete agreements.

Former Illinois Attorney General Lisa Madigan sued the company in October 2017 on behalf of the 250 employees based in Illinois (out of 3,000 nationwide), claiming Check Into Cash was in violation of state law, while citing economic literature that such agreements suppress both wages and worker movement, hurting the state’s economy.

The lawsuit claimed that the Check Into Cash’s noncompetes barred employees from working at other employers within a 15-mile radius of any of the company’s locations that offer similar services for a year. With 33 locations in the state, the suit said, this essentially covered the entire Chicagoland area. In January 2019, the company settled and agreed to rescind its non-compete policy.

Madigan and New York Attorney General Barbara Underwood combined forces to reach a similar agreement but on a national scale with a global shared office space firm called WeWork Companies Inc., which previously had mandated that its roughly 100 Illinois-based employees in eight Chicago locations signed non-competes.

Those agreements applied to not only senior staff but also cleaners, mailroom employees, executive assistants and even baristas in ground floor coffee shops, who were paid as low as $15 hourly. Once again, the notion that such non-competes protected a legitimate business interest and were reasonable in terms of scope, geography and duration did not hold up.

The settlement, reached in September 2018, ends non-competes for more than 1,400 employees nationwide and loosens restrictions on another 1,800—including architects, software engineers, community managers and interior designers—for whom the time period has been shortened from one year to six months, the geographic radius has been dramatically reduced from the previous 15 miles, and the scope of work prohibited narrowed considerably.

Illinois is far from alone in enacting such legislation—in fact, it wouldn’t be overstating the case to say it’s part of a growing trend. In just the past eight months, similar laws (with slightly different provisions) have been passed in Maine, Maryland, New Hampshire, Rhode Island and Washington.

As I said, employers would be wise to take note.