By Natalie Tupta, Staff Writer
Recently, lawsuits against Jimmy John’s by the attorney generals of Illinois and New York turned heads, as the popular fast food sandwich shop was forcing noncompete agreements onto its sandwich makers and delivery drivers through their employment contracts.[1] Noncompete clauses prohibited them from working for any other sandwich shop in the United States located within a few miles of a Jimmy John’s location — not only while they were employed by Jimmy John’s but also for two years after the worker stopped working there.[2] Jimmy John’s has about 2,000 locations in the U.S., including almost 300 stores in Illinois.[3]
The laws that govern the enforceability of noncompete clauses vary by state, but most states generally apply a similar set of rules and principles. In Pennsylvania, for example, noncompete agreements are not encouraged. They limit companies’ free competition[4] by restricting their abilities to recruit the most qualified candidates and restricting workers’ ability to pursue jobs that meet their personal and professional goals.
The courts heavily scrutinize noncompete agreements that employers try to enforce through litigation, focusing on whether the scope of the restrictions are reasonably necessary to protect an employer’s legitimate business interests.[5] If the court recognizes that an agreement is acting to protect a legitimate business interest, the court then weighs the employer’s interests against the interest of the employee in having the opportunity to make a living.[6]
The Illinois and New York cases against Jimmy Johns were based on two primary issues with that made the noncompete agreements unenforceable. Such agreements have traditionally been included in employment contracts as a means for employers to protect unique aspects of their business, such as trade secrets, confidential information, customer goodwill, and specially designed employee training programs.[7] The Jimmy John’s noncompete agreements were criticized because sandwich makers and drivers arguably do not possess any confidential information or unique skills that warrant such protection. Noncompete agreements are traditionally part of contracts for highly skilled workers, such as physicians and tech workers; sandwich making and delivery driving, on the other hand, are jobs that do not require specialized skills and can be mastered with minimal training.
The other major concern was that Jimmy John’s employees’ interest in having a full range of employment options far outweighed any value the company stood to gain from enforcing the agreements. First, from the moment of hire, these employees were at a disadvantage; they did not have the power to negotiate the terms of their employment contract that employees at higher levels of the company had.[8]
Second, the noncompete agreements could effectively trap low-wage workers into unfavorable working conditions because of fear of litigation over breach of contract. Illinois Attorney General Lisa Madigan said that “‘[b]y locking low-wage workers into their jobs and prohibiting them from seeking better paying jobs elsewhere, the companies have no reason to increase their wages or benefits.’”[9]
These factors demonstrate the power imbalance between Jimmy John’s and its employees created by the noncompete agreements.
The resolution of these cases suggests that Jimmy John’s was willing to work with the government. In the Illinois case, Jimmy John’s was set to pay a $100,000 settlement, which would fund “education and outreach programs to promote best practices by the employers.”[10] In both cases, the settlement agreements required the removal of these noncompete agreements from the contracts signed by Jimmy John’s sandwich makers and delivery personnel.[11]
The Illinois Legislature addressed the concerns raised in the Jimmy John’s case by enacting the Illinois Freedom to Work Act. The act prohibits employers from imposing noncompete agreements on employees who make less than $13 per hour.[12] Hopefully, companies and government entities will work together in other jurisdictions as well to promote fair employment practices for low-wage workers.
Sources
[1] Jimmy John’s pays $100K in settlement over non-compete clauses, Chicago Sun-Times (Dec. 7, 2016), http://chicago.suntimes.com/news/jimmy-johns-pays-100k-in-settlement-over-non-compete-clauses/ (last visited Jan. 30, 2017); Dave Jamleson, New York Attorney General Goes After Jimmy John’s Over Noncompete Agreements, Huffington Post (Dec. 23, 2014), http://www.huffingtonpost.com/2014/12/22/eric-schneiderman-jimmy-johns-noncompete_n_6369146.html (last visited Jan. 31, 2017).
[2] Id.; Samantha Bomkamp, Jimmy John’s agrees to pay $100,000 to Illinois AG over noncompete contracts, Chicago Tribune (Dec. 7, 2016), http://www.chicagotribune.com/business/ct-jimmy-johns-settlement-1208-biz-20161207-story.html (last visited Jan. 30, 2017).
[3] Jimmy John’s pays $100K in settlement over non-compete clauses, Chicago Sun-Times (Dec. 7, 2016), http://chicago.suntimes.com/news/jimmy-johns-pays-100k-in-settlement-over-non-compete-clauses/ (last visited Jan. 30, 2017); Samantha Bomkamp, Jimmy John’s agrees to pay $100,000 to Illinois AG over noncompete contracts, Chicago Tribune (Dec. 7, 2016), http://www.chicagotribune.com/business/ct-jimmy-johns-settlement-1208-biz-20161207-story.html (last visited Jan. 30, 2017).
[4] 29 P.L.E. Labor § 7 (2016).
[5] Id.
[6] Id.
[7] Id.
[8] Neil Irwin, When the Guy Making Your Sandwich Has a Noncompete Clause, New York Times (Oct. 14, 2014), https://www.nytimes.com/2014/10/15/upshot/when-the-guy-making-your-sandwich-has-a-noncompete-clause.html?_r=0 (last visited Jan. 31, 2017).
[9] Daniel Wiessner, Illinois attorney general sues Jimmy John’s over non-compete agreements, Reuters (Jun. 8, 2016), http://www.reuters.com/article/us-jimmyjohns-lawsuit-idUSKCN0YU2RS (last visited Jan. 30, 2017).
[10] Jimmy John’s pays $100K in settlement over non-compete clauses, Chicago Sun-Times (Dec. 7, 2016), http://chicago.suntimes.com/news/jimmy-johns-pays-100k-in-settlement-over-non-compete-clauses/ (last visited Jan. 30, 2017).
[11] Id.
[12] Id.
