NEWSFLASH! The Competition is On: Curtailing Noncompete Agreements at the State and Federal Level
Authors: Tomasz A. Sobieraj, Esquire
President Biden signed an Executive Order on Promoting Competition in the American Economy on July 9, 2021, which encourages the Federal Trade Commission (“FTC”) “to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”
While the Executive Order itself does not ban noncompete agreements, it puts pressure on the FTC to address and limit unreasonable restraints on competition, particularly with respect to lower income employees. Lina Khan, the newly confirmed FTC Chair, is a proponent of the implementation of federal rules targeting anti-competitive practices, and can be expected to play a significant role in implementing the policies of the Executive Order. The breadth and timing of the new rules and regulations is unknown at this time. However, in March 2021, Congress reintroduced for the third time the Federal Workforce Mobility Act, which if passed, would significantly restrict the use of noncompete agreements and prevent enforcement against most American employees.
Currently, the use of noncompete agreements is regulated at the state level. While noncompete and non-solicit agreements are permissible in Illinois, their use has been restricted in recent years.
The issue of overly restrictive noncompete agreements took center stage in 2016 when the Illinois attorney general successfully sued Jimmy John’s for requiring all of its employees, even those making minimum wage, to sign noncompete agreements that prevented them from employment with competing sandwich restaurants for two years after termination of employment with Jimmy John’s. As part of the settlement, Jimmy John’s agreed to stop using noncompete agreements in violation of Illinois law.
In 2018, Medix Staffing Solutions, Inc. v. Dumraif became the first case in Illinois to apply the doctrine known as the “janitor test” to determine the enforceability of noncompete agreements. Under the “janitor test,” a noncompete agreement is likely not enforceable if it is so broad that it would even prevent an employee from working as a janitor for a competitor.
On May 31, 2021, the Illinois General Assembly unanimously passed the Illinois Freedom to Work Act (the “Act”). Governor Pritzker is expected to sign the Act into law, which will affect noncompete and non-solicitation agreements entered into after January 1, 2022. In part, the Act will ban noncompete agreements for any employee earning less than $75,000.00 per year and non-solicit agreements for employees earning less than $45,000.00 per year. The Act will also require existing and new employees to be advised in writing to consult with an attorney before signing a noncompete agreement and requires “adequate consideration” be provided to employees for noncompete and non-solicit agreements to be enforceable.
As the trend continues towards increased restrictions as to the enforceability and use of noncompete and non-solicitation agreements, employers should consider revisiting their current policies to comply with the potential for new requirements on the immediate horizon.
CONTACT:
Tomasz A. Sobieraj, Esquire
tsobieraj@satclaw.com
Mobile: (312) 554-3127
John W. Campbell, Jr., Esquire
jcampbell@satclaw.com
Direct: (312) 554-3126
Websites:
https://satclaw.com/
https://www.satcsolutions.com/
https://www.BridgingChicago.com