Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: Jimmy John’s agrees to nix noncompetition agreements in New York, (Jun 23, 2016)

By Pamela Wolf, J.D.

Jimmy John’s Gourmet Sandwiches has agreed to stop including sample noncompetition agreements in the hiring packets it sends to franchisees, New York Attorney General Eric T. Schneiderman announced June 22. The corporate entity also agreed to inform franchisees that Schneiderman has concluded that the noncompetition agreements are unlawful and should be voided. The development comes two weeks after the Illinois Attorney General took action against the sandwich chain to shut down its use of noncompetition agreements in that state.

Unlawful agreements. Jimmy John’s distributed unlawful sample noncompete agreements to franchisees, including its New York franchisees, for use with restaurant workers and delivery drivers, according to the New York Office of the Attorney General (OAG). The noncompete agreements, similar to the ones used in Illinois, barred the company’s sandwich makers, for a period of two years after leaving a job with Jimmy John’s, from working at any establishment within a two-mile radius of a Jimmy John’s location that made more than 10 percent of its revenue from sandwiches.

Under New York law, use of noncompetition agreements is not permitted except in very limited circumstances, the OAG said. For example, a noncompete agreement may be allowed to protect trade secrets or in relation to employees with uniquely special skills.

Investigation. The deal to halt the use of noncompetition agreements concludes an investigation that began with inquiries to Jimmy John’s corporate offices and its New York franchisees in December 2014. The investigation found that some franchisees in New York State used the noncompete agreement; those that used the agreements have agreed to void past agreements and discontinue their usage, according to the OAG.

"Noncompete agreements for low-wage workers are unconscionable," Schneiderman said in a press release. "They limit mobility and opportunity for vulnerable workers and bully them into staying with the threat of being sued. Companies should stop using these agreements for minimum wage employees."

Illinois lawsuit. Illinois Attorney General Lisa Madigan on June 8 filed a lawsuit against Jimmy John’s corporate entities, Jimmy John’s Enterprises LLC and Jimmy John’s Franchise LLC, for imposing what she called "highly restrictive non-compete agreements on its employees"—including on low-wage sandwich shop workers and delivery drivers whose primary job duties are to take food orders and make and deliver sandwiches. Madigan brought the action "to prevent the continued unlawful imposition and use of noncompetition agreements by [Jimmy John’s] on at-will, low-wage employees and to ensure that current and former employees are informed that the noncompetition agreements they entered into are unenforceable and void," according to the complaint.

The employees bound by the noncompetition agreements in Illinois are employed at-will and have minimal access to confidential or trade secret information, the complaint states. Under Illinois law, noncompetition agreements must be premised on a legitimate business interest and narrowly tailored in terms of time, activity, and place.

The complaint asserts that Jimmy John’s has no legitimate business interest to justify imposing 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," according to the complaint. "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."

Companies: Jimmy John’s Gourmet Sandwiches; Jimmy John’s Enterprises LLC; Jimmy John’s Franchise LLC

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