A few years ago, the Jimmy John’s sandwich restaurant chain ran into problems over noncompetition agreements entered into with hourly workers at its franchisees’ stores. Several state attorneys general contended that requiring employees at this level to sign noncompetes as a condition of employment constituted an unfair trade practice intended to depress wages by preventing employees from leaving to work for a competitor. In response to these allegations, Jimmy John’s agreed to stop using the noncompete agreements.

However, this decision apparently did not end scrutiny of the company’s employment practices. Last month, a Jimmy John’s employee filed a class action lawsuit in Illinois claiming that the company’s franchise agreement violates federal and state antitrust laws. The plaintiffs allege that the agreement prohibits one Jimmy John’s franchisee from seeking to hire the employees of another franchisee and imposes substantial penalties for violations. They claim this “no-poaching” arrangement depresses wages and employment opportunities for Jimmy John’s employees.

No-poaching agreements between competitors are per se violations of federal antitrust laws. In this case, the court will have to determine whether these same legal principles apply to agreements between two franchisees of the same company. The two franchisees in separate geographic territories may not compete with each other for sandwich sales, but the plaintiffs claim that they do compete for labor services in that general geographic area.

Franchisors or employers using similar agreements should closely monitor this litigation to determine what it means for the legality of these restrictions.