Category: Non-Compete Dispute

Illinois Reaches Settlement with Jimmy John’s

Jimmy John’s recently required its Illinois employees to sign highly restrictive non-compete agreements. These agreements would effectively prevent the individuals from working at most food-related companies in the nation. The company’s actions were so egregious Illinois passed a law prohibiting employers from using non-compete agreements for employees earning $13 or less per hour.

Illinois’ Attorney General, Lisa Madigan, also filed suit against the Corporation for unfair labor practices. In essence, the lawsuit claims the company forced its employees to sign the non-compete agreements, knowing they were unenforceable, in an attempt to chill any effort by employees to consider leaving for another employer.

This week, the Illinois Attorney General and Jimmy John’s reached a settlement in the case. The company settled the case with Illinois for $100,000, and further agreed to:

  • notify all current and former employees the agreements are non-enforceable;
  • rescind any non-competes used based on the unenforceable agreement;
  • remove all non-compete from the new-hire process; and
  • comply with Illinois law regarding non-competes in the future.

Unfortunately, instead of using non-compete agreements to protect a legitimate business interest, companies are increasingly using the documents to simply dissuade employees from working someone else. Courts are clear that simply using a non-compete to discourage an employee from quitting or working for a competitor are not in-and-of-themselves legitimate business interests for purposes of non-compete agreements. If you have signed a covenant not to compete or other business agreement, it is highly advisable to speak with an attorney to learn your legal rights.

 

Illinois Enacts New Non-Compete Law

Businesses can have very legitimate reasons for implementing covenants not to compete (non-competes) with their employees. In Illinois, there are primarily two ways companies can justify subjecting employees to non-competes: (1) protecting confidential trade information; and (2) protecting customer relationships. In evaluating whether a non-compete is valid, a court will determine whether the provision: (1) is no greater than is required for the protection of a legitimate business interest of the employer-promisee; (2) does not impose undue hardship on the employee-promisor; and (3) is not injurious to the public. See Reliable Fire Equip. Co. v. Arredondo, 965 N.E.2d 393, 396 (Ill. 2011).

Jimmy John’s Non-Compete Agreements

There are certainly “close cases” when it comes to the enforceability of non-competes. Whether a restriction should last for one or two years, restrict competition within 50 or 100 miles, or limit the applicability of the non-compete to a specific type of business activity are all likely relevant in whether a non-compete will have any force. However, the non-compete Jimmy John’s required its employees to sign was certainly not a close case. The sandwich company required all employees to sign a non-compete (the entire agreement can be found here), prohibiting the employee from working for any business which derives more than 10% of its revenue from sandwiches, and located within 3 miles of any Jimmy John’s restaurant for a period of two years. The agreement does not even attempt to justify why a non-compete is necessary, as most do.

Sandwich

Thus, if enforceable, the vastly overbroad provision would likely prevent a former Jimmy John’s employee from working at other sandwich-making restaurants such as Subway and Mr. Goodcents, but it would also prohibit the employee from working at McDonald’s, Arby’s, Burger King, and many (if not most) other fast-food restaurants.  Not only that, but as many fast food restaurants are within three miles of a Jimmy John’s, it would prevent the employee from working at any of the restaurants nation-wide!

It is mind boggling why someone thought this non-compete was necessary. Jimmy John’s employees do not have any secret information when making your sub. In fact, a customer can watch the employee make the entire sandwich. Jimmy John’s employees also do not have protectable customer relationships.  Even if the company had protectable interests, a court would likely find the non-compete was not limited to those interests. Instead of restricting the non-compete to sub sandwich restaurants near the particular Jimmy John’s, it restricted employment to basically all restaurants in the country.

Fortunately, the non-competes caught the attention of the Attorney Generals in Illinois and New York, and both states filed suit against the company for unfair conduct in violation of the States’ Consumer Fraud and Deceptive Business Practices Acts. The company soon caved, and agreed to not enforce any previous non-competes, and not require new employees to sign the provisions.

Illinois Freedom to Work Act

To prevent future oppressive conduct by companies, Illinois recently enacted the Illinois Freedom to Work Act. The Act prohibits employers from entering into non-competes with employees who earn $13 or less per hour. If the employer chooses to enter into the non-compete with such “low-wage employee,” the Act deems the covenant illegal and void. The Act becomes effective on January 1, 2017, and only applies to agreements entered after that date.

The moral of the story is that if you are contemplating signing a non-compete, or are not sure how an already-signed non-compete will affect you, consult an attorney immediately. Do not assume that all non-competes are enforceable in DuPage County or elsewhere in Illinois, because as Jimmy John’s showed, they often are not.