Jimmy John's Settlement Cautions Employers Over Widespread Non-Compete Use

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The Jimmy John’s sandwich chain recently settled state law claims in Illinois relating to its former requirement that hourly restaurant employees sign non-competition agreements that prohibit them from working for a competing sandwich business after leaving employment. This settlement follows a similar one in New York over claims that this practice constituted an abusive employment practice intended to keep employees from leaving for better wages. As part of the settlement, Jimmy John’s agreed to discontinue using non-competes with this portion of its workforce.

These settlements caution employers against unintended results from non-discriminate use of non-competes. If challenged, most courts would have difficulty upholding restrictive covenants made with low-wage, hourly employees. Employers would have problems articulating the specific competitive threat presented by such employees leaving to work for a competitor. More importantly, casting too wide a net with non-competes risks a court concluding that the employer does not have a protectable competitive interest for any employee.

For most employers, non-competition agreements should be limited to workers with a true ability to harm the company through unrestricted competition. Typically, these include executives, salespersons, and employees with specific technical knowledge or responsibilities. For other employees, the company can usually protect itself by entering into confidential information agreements that do not restrict subsequent employment, but protect against unauthorized disclosure of proprietary information. As with many employment contract situations, less is sometimes more when requiring non-competition agreements.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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