Backlash Against Jimmy John’s Non-Compete Agreement Highlights Risks of Overzealous Business Protection Measures

Orrick - Trade Secrets Group
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https://jdsupra-html-images.s3-us-west-1.amazonaws.com/37de029e-89b1-4191-a43c-027627f7ef08-shutterstock_9263161-200x150.jpgThe submarine sandwich franchise Jimmy John’s has come under fire recently following the publication of a broad non-compete agreement that it has allegedly required rank-and-file employees to sign.  The non-competition agreement came to light after several employees brought a putative class action seeking to torpedo the Illinois-based company for alleged violations of wage laws and also sought a declaratory judgment that the agreement was void as against public policy (the case is currently pending in the Northern District of Illinois, Brunner v. Jimmy John’s, Case No. 14-cv-05509).

The agreement prohibits employees from performing services for “any business which derives more than ten percent of its revenue from selling submarine, hero-type, deli-style, pita and/or wrapped or rolled sandwiches” that is located within three miles of any Jimmy John’s for two years following termination of employment.  Since Jimmy John’s operates nationwide, the agreement if enforced would essentially bar former employees from working at another sandwich shop for two full years.   While even sandwich shops have a legitimate interest in protecting sensitive confidential information—for example, supplier and cost information—the Jimmy John’s agreement has been criticized for going beyond that legitimate purpose and restricting rank-and-file employees—like delivery people—not privy to such confidential information.  Interestingly, in what seems like a move to protect franchisees from raiding other stores, the non-competition agreement goes even farther and would also bar former employees from working at another Jimmy John’s location for at least one year following termination of employment.

In addition to the civil suit mentioned above, Jimmy John’s is now facing scrutiny from members of Congress and New York’s Attorney General.  Moreover, given its nationwide operations, Jimmy John’s could face demands from a variety of parties, and even different results since states differ in their willingness to recognize non-compete agreements, particularly for minimum wage paid rank-and-file employees.  The situation therefore highlights the need for companies to take a thoughtful approach to trade secrets protection—and the litigation and publicity risks of an overzealous approach.  Finally, while we are unaware of any draft legislation reaching the issue, the risk of inconsistent enforcement of non compete agreements across different states could potentially be taken up in future federal trade secrets legislation.

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