Impact | Business Risk Management Blog

Jennifer Abruzzo, general counsel for the National Labor Relations Board (NLRB), issued a memorandum on May 30, 2023, finding that except in limited special circumstances, non-competition agreements – including the act of merely giving employees non-competition agreements or maintaining existing ones – violate Sections 7 and 8 of the National Labor Relations Act (Act). The memorandum states, “Except in limited circumstances, I believe the proffer, maintenance, and enforcement of such agreements violate Section 8(a)(1) of the Act.”

On January 5, 2023, the Federal Trade Commission (FTC) published a proposed rule that, if finalized, would ban all employer non-compete agreements. As currently written, the proposed rule finds that it is unfair competition for an employer to:

• Enter into or attempt to enter into a non-compete clause with a worker;
• Maintain a non-compete clause with a worker;
• Represent to a worker that the worker is subject to a non-compete clause where the employer has no good faith basis to believe that the worker is subject to an enforceable non-compete clause.

The Illinois House and Senate have agreed on a version of the Illinois Freedom to Work Act, which is waiting for Governor Pritzker to sign into law. The Act puts restrictions on which employees can be subject to covenants not to compete and covenants not to solicit.

Several bills are pending in the Illinois House of Representatives and Senate that, if signed into law, could radically change the landscape of the use of covenants not to compete and covenants not to solicit in Illinois. Employers should be aware of this pending legislation because, if passed, it could have serious ramifications for businesses in Illinois. 

Several times a year, business owners tell me that restrictive covenants (such as non-competition, non-solicitation or non-disclosure provisions) are not enforceable in Illinois. That is not true. The state and federal courts in Illinois enforce restrictive covenants on a routine basis. However, to be enforced, the restrictive covenants need to have been properly drafted and kept up to date with changes in the law. Put another way, in the majority of cases where the courts do not enforce the restrictive covenants, the restrictive covenants could have been drafted in such a way that they likely would have been upheld.

In a somewhat unusual move, the state of Illinois has filed a complaint against Check Into Cash of Illinois, Inc., on behalf of the citizens of the state, seeking a declaration that the non-competition covenants that the company requires its employees to sign are unenforceable and violate the Illinois Freedom to Work Act, 820 ILCS 90/1.

Think twice before requiring at-will, low-wage workers to sign noncompetes

On June 8, the Illinois attorney general filed a lawsuit in Cook County (Illinois) Circuit Court against two Jimmy John’s entities: franchisor Jimmy John’s Franchise LLC and an LLC owning eight Jimmy John’s sandwich shops, Jimmy John’s Enterprises LLC. The lawsuit alleges the sandwich chain engaged in unfair and deceptive acts or practices unlawful under the Consumer Fraud and Deceptive Practices Act. The lawsuit seeks to stop the allegedly unlawful use of noncompetition agreements on at-will, low-wage employees and to ensure that current and former employees are informed that the noncompetition agreements they signed are unenforceable. 

A recent decision from the Northern District of Illinois favors the “totality of circumstances” approach to evaluating the sufficiency of consideration necessary to support a restrictive covenant

Another judge from the Northern District of Illinois has thrown his hat into the ring in the debate over what is required to make a non-compete agreement enforceable in Illinois.

The “bright line” rule for the adequacy of non-compete agreements in Illinois first announced in Fifield v. Premier Dealer Servs., Inc., just became a bit hazier for parties evaluating the enforceability of their restrictive covenants.

Last week, a federal district court judge applying Illinois law declined to void a non-compete agreement on the basis that the at-will employment relationship that was the consideration for the restrictive covenant lasted less than two years. Adopting the reasoning of three of the four federal court judges in the Northern District of Illinois that have addressed the issue, the court, in R.J. O’Brien & Associates v. Williamson,¹ concluded that the Illinois Supreme Court would reject a two-year bright line rule for the adequacy of consideration required for a non-compete agreement to be enforceable.

A recent decision from the Illinois Appellate Court for the First District reminds employers of the need to act quickly and thoroughly in investigating potential breaches of employee restrictive covenants and in taking actions to enforce their rights under those agreements.

In Bridgeview Bank Group v. Meyer, 2016 IL App (1^st) 160042, the court affirmed the trial court’s denial of an employer’s petition for a temporary restraining order against a former employee. Bridgeview Bank had employed Thomas Meyer as a senior vice president. The bank entered into an employment agreement incorporating non-compete, non-solicitation and non-disclosure provisions at the beginning of the employment relationship.