By Grady Hepworth
Last year, national sandwich chain Jimmy John’s garnered widespread media attention after it was revealed that the company requires many of its sandwich makers, and some delivery-drivers, to sign non-compete agreements for entry-level jobs. The Huffington Post originally obtained Jimmy John’s non-competition covenant, and Jimmy John’s has since become the center of litigation, as well as Congressional legislation, to protect the mobility of low-wage workers.
Jimmy John’s non-compete agreement shocked some, and outraged others, for its potentially far-reaching effects and the hardship it could impose on low-wage workers. The agreement prohibited former employees from working for any sandwich-making restaurant within a three-mile radius of a Jimmy John’s location within city limits, for at least two years. As drafted, the agreement could preclude former employees from working for any competing restaurant within an entire city (the covenant applies to any restaurant that derives at least ten percent of its profits from sandwich-like products). Jimmy John’s justifies the agreement due to the “substantial time, effort, and money in developing the products sold to customers” and effort spent “refining the procedures to be used in operating” Jimmy John’s restaurants. Subsequently, the controversy has inspired media outlets to expose similar low-wage non-compete agreements utilized by other companies, including Amazon.
A current Jimmy John’s worker and a former employee of the national sandwich chain filed a lawsuit. The plaintiffs sought a class action certification for Illinois Minimum Wage Law violations, a claim for Fair Labor Standards Act (FLSA) violations, as well as injunctive relief against the enforcement of their contractual non-compete agreements. The plaintiffs filed the lawsuit against Jimmy John’s CEO Jimmy John Liautaud, the corporation, as well as local franchise owners. While the worker’s lawsuit was able to proceed on FLSA violations to recover unpaid overtime benefits from the franchise owners, the federal district court dismissed the plaintiffs’ class action certification and their claim for injunctive relief against the non-compete agreements under Federal Rule 12(b) for failure to state a claim.
Rather than render a decision on the merits regarding the enforceability of the non-compete agreement, the Court held that the employees who filed the lawsuit did not have standing to maintain a claim. In this case, Jimmy John’s had not sought to enforce the non-competition covenant against either employee, and in fact submitted two legal affidavits stating that they did not intend to enforce the agreement against the employees in the future. The Court’s decision did not determine whether the agreement would be valid, or, as some have speculated, whether it is too broad to enforce.
Although the current state of low-wage worker non-compete agreements is undetermined, the future of the agreements could become clearer after the coming legislative session. The controversy has gained some traction in Congress with a Senate Bill, The Mobility and Opportunity for Vulnerable Employees Act (MOVE Act). Senator Christopher Murphy (D-CT) and Senator Al Franken (D-MN) introduced the bill to prohibit any covenant-not-to-compete agreement for workers paid less than a “livable hourly rate.” As of the writing of this piece, the legislation has been introduced in the Senate and is pending approval by the Committee on Health, Education, Labor, and Pensions. Several states are considering this type of legislation. Hawaii recently joined California and at least three other states to ban non-compete agreements entirely. A similar bill was recently introduced in Washington as well, although the legislation has been met with significant opposition from business leaders in the state.
Although Jimmy John’s non-compete agreement may have survived its latest challenge in the courts, the controversy has ignited an important debate on the effectiveness of non-compete agreements generally, how far courts might be willing to enforce them, and whether legislatures should tolerate the agreements at all. In the meantime, non-compete agreements continue to levy powerful legal constraints over countless low-wage workers because they discourage lateral employment opportunities.
Image Source: Gilbert Law Group.