Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: Illinois challenges Jimmy John's use of non-competition agreements for all employees, (Jun 9, 2016)

By Edward L. Puzzo, J.D.

Jimmy John's sandwich shops require all its employees to sign, without adequate consideration, non-competition agreements that are unreasonable, unconscionable, unenforceable and constitute an impermissible restraint of trade, according to a complaint filed by the Illinois Attorney General in the Cook County Circuit Court in Chicago (State of Illinois v. Jimmy John's Enterprises, LLC, June 8, 2016).

Noncompetition agreement. With franchise and corporate-owned locations combined, Jimmy John’s operates about 274 sandwich shops in Illinois and more than 2,300 shops nationwide. Jimmy John’s corporate entities required all store employees, including franchise employees—including low-wage workers and delivery drivers whose primary job duties are to take food orders and make and deliver sandwiches—to sign a noncompetition agreement, which the company claims is covered by copyright, as a condition of employment, the complaint alleges. Under the agreement, employees are restricted during their employment and for two years afterward from working in any other business that earns more than 10 percent of its revenue from selling "submarine, hero-type, deli-style, pita, and/or wrapped or rolled sandwiches." The work restriction purportedly applies to any sandwich business located within three miles of any Jimmy John’s sandwich shop in the country. A later, nearly identical version of the agreement, also ostensibly covered by copyright, modified the geographic limitation to two miles.

The noncompetition agreements "expressly stated that employment was conditioned on execution of the agreement," the complaint states. However, employees did not receive a bonus, pay increase, or guaranteed period of employment in exchange for signing agreements. The noncompetition agreements also contained a confidentiality agreement aimed at protecting confidential and proprietary information employees might acquire during their employment.

Notably, the employees bound by the noncompetition agreements are employed at will, according to the complaint, and they have minimal access to confidential or trade secret information.

Legitimate business interest. The complaint argues that Jimmy John’s has no legitimate business interest to warrant imposition of noncompetition agreements on store employees and assistant managers. "Defendants’ only apparent concern has been to chill any effort by employees to consider leaving for another employer," the complaint states. "Because the Defendants and their franchisees lack any legitimate business interest to justify the agreements, the agreements are not supported by adequate consideration, and the agreements are not narrowly tailored, they are unreasonable and unenforceable under Illinois law."

Illinois law requires noncompetition agreements to be premised on a legitimate business interest and narrowly tailored in terms of time, activity and place.

Investigation. Madigan’s office said that Jimmy John’s corporate entities at first stated they had stopped using noncompetition agreements in April 2015. However, Jimmy John’s later amended their response and revealed that the change in corporate policy was not implemented or communicated to corporate-owned sandwich shops, employees, or franchisees.

Relief. The complaint seeks a declaratory judgment that the agreements are unenforceable, void, and rescinded, as well as an injunction precluding Jimmy John’s stores from using the noncompetition agreement. Among other things, the Illinois Attorney General is also seeking restitution for harm to Illinois customers and businesses; disgorgement of benefits from unlawful acts and practices; and penalties of $50,000 per violation under the Illinois Consumer Fraud and Deceptive Business Practices Act.

Madigan’s office also is investigating other companies that have unlawfully imposed similarly restrictive noncompetition agreements. "Preventing employees from seeking employment with a competitor is unfair to Illinois workers and bad for Illinois businesses," Madigan said in a press release. "By 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."

The case is Civil Action No. 2016-CH-07746.

Attorneys: Lisa Madigan, Illinois Attorney General, for the State of Illinois.

Companies: Jimmy John's Enterprises, LLC; Jimmy John's Franchise, LLC

News: FranchisingDistribution StateUnfairTradePractices IllinoisNews