Illinois’s Freedom to Work Law

October 30, 2017

The Illinois attorney general has sued Check Into Cash for violations of Illinois’s new law about covenants not to compete. Check Into Cash is a national payday lending and check-cashing company. A covenant not to compete is a contractually binding promise an employee makes to an employer not to work at a competing business even after the employee leaves. If the employee breaks that promise, the employer can sue for money damages or even for an injunction stopping the employee from working at the competing job.

Once upon a time, covenants not to compete were used sparingly by employers to protect trade secrets or large investments in employee training. By ensuring employees would not take trade secrets or valuable training to competitors, covenants not to compete encouraged employers to invest in the training or the trade secrets in the first place. In theory, the end result was good for all of us. Covenants not to compete were said to give us more employment, more investment – greater economic growth generally. Courts would enforce covenants not to compete if they were reasonable in duration and geographic scope.

Reality, however, diverged from theory. Employers started using covenants not to compete for all sorts of employees and in many situations where they were never meant to be used. A 2016 Treasury Department paper found 37% of workers have been in a job where they were subject to a covenant not to compete. The Treasury Department concluded, “a growing body of evidence suggests that they are frequently used in ways that are inimical to the interests of workers and the broader economy.”  Also, there is one state where covenants not to compete were never enforceable. That state is California. Although the research is not conclusive, some papers have found the free mobility of labor actually helped the development of Silicon Valley rather than hindered it.

In January 2017, Illinois joined a growing number of states to take action against employer abuse of covenants not to compete. Under the Illinois Freedom to Work Law, employers cannot enforce covenants not to compete against employees making $13/hour or less. The attorney general’s lawsuit against Check Into Cash relies on the Freedom to Work law, alleging many of the company’s employees make under $13/hour. This law, however, does not specify the consequences of a violation. It merely says that a covenant not to compete is null and void when the employee wage is $13/hour or less. There is not much deterrence if the only consequence of violating the Freedom to Work Law is that the company has to stop doing so.

Importantly, the attorney general’s lawsuit also alleges Check Into Cash has violated the Illinois UDAP law – that is, a law that prohibits unfair and deceptive acts and practices in consumer transactions. The UDAP law does authorize financial penalties, but traditionally a UDAP law is used against fly-by-night sellers of sham consumer products, predatory lenders, and their ilk. On its face, there is no reason the UDAP law could not apply to abusive employer practices. My research could uncover only one of instance of a state UDAP law being used in an employer-employee dispute and that was in 2016 when the Illinois attorney general brought a lawsuit against the sandwich company, Jimmy John’s, for requiring many of its low-wage employees to sign covenants not to compete. That lawsuit ended with a $100,000 settlement and a commitment from Jimmy John’s to stop requiring covenants not to compete.

The Freedom to Work law has given the Illinois attorney general a new tool with which to work, but combining this new law with the UDAP to fashion effective relief was a clever move. It also should be noted that Check Into Cash has not had its day in court to answer the attorney general’s allegations, but going forward, this is a case to watch.