Tuesday, August 30, 2016

Illinois Bans Non-Compete Agreements (Sort of...)

2016 is shaping up as another busy year on the legislative front (don't tell Massachusetts, though).

Earlier this month, Governor Bruce Rauner signed into law the Illinois Freedom to Work Act, which bans covenants not to compete for low-wage employees. That term means those workers who earn the greater of the prevailing minimum wage or $13.00 per hour. This forever may be known as the Jimmy John's Bill, since during the debate over the law Attorney General Lisa Madigan sued Jimmy John's for requiring sandwich shop employees to execute non-competes (barring employment within three miles of their location).

The new Freedom to Work Act does not contain any investigative mechanism. Originally, the Senate version of the bill would have enabled the Department of Labor to investigate the use of employee non-competes, with appropriate penalties to follow for failing to comply with an investigation or for failing to keep adequate records. This means that Attorney General Madigan is likely to follow through on her pledge to root out the use of oppressive non-compete agreements, perhaps in similar retail, non-traditional restrictive covenant environments like Jimmy John's.

Private litigants can pursue declaratory relief when there is a justiciable controversy over their own non-competes. A largely unresolved question (now that the Jimmy John's case has settled) is whether the Attorney General or a private litigant can use the Consumer Fraud and Deceptive Business Practices Act as an alternative means to challenge an unenforceable non-compete arrangement as an unfair trade practice. That law would at least provide a route for the recovery of legal fees. If the Attorney General sues, a violation of that law could result in the imposition of a civil penalty up to $50,000.

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