Your mom may want you to eat at Jimmy John's, but would she want you to work there? The Huffington Post recently reported on a Jimmy John's franchisee's "oppressive" noncompetition agreement, which was disclosed as part of a lawsuit by employees. (For the uninitiated, Jimmy John's is a national chain of bro-tastic sub sandwich shops, usually found in college towns.)
The Content of the Noncompete Clause
The Jimmy John's franchisee's noncompetition agreement purports to bind the employee for two years after his termination "for any reason," and forbids the employee from having any interest or providing any services for any business that derives more than 10 percent of its revenues from sub sandwiches within 3 miles of any Jimmy John's sandwich shop. It also prevents an employee from being affiliated with any other Jimmy John's for a year after termination "for any reason."
According to Kathleen Chavez, who's representing the plaintiffs in the class action suit, "the effective blackout area for a former Jimmy John's worker would cover 6,000 square miles in 44 states and the District of Columbia."
Noncompetition agreements are fairly common in the business world -- and they're also often unenforceable by law. For example, California's Business & Professions Code § 16600 voids the relevant provisions of "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind." (There are exceptions for specific, narrow situations.)
Even in states where noncompetition agreements are enforceable, they must be reasonable in geographic scope, duration, and subject matter, and may even require separate consideration. Even though none of this information is new to GCs, they should be aware not only of what their companies' contracts say, but also what their clients' and vendors' contracts say. Parties that use standard form contracts, which usually aren't adjusted for jurisdiction, might contain an unenforceable noncompetition clause.
In addition to possibly not being enforceable,many businesspeople think noncompetes are normatively bad. Employers' major concern when making employees sign noncompete agreements is protection of trade secrets -- even though those are already protected by civil and criminal penalties. It fosters suspicion between employees and employers and potentially alienates employees once they leave, according to Inc. magazine.
Noncompetes might be justified in some situations, maybe for high-level employees involved in sensitive proprietary projects. Companies understandably don't want those employees to unconsciously incorporate that information into their new work with a competitor. But for low-level employees who are just following orders -- like Jimmy John's sandwich makers -- it's unclear what sensitive proprietary information Subway or Quiznos could learn. ("Now that we've poached Bobby from the University Avenue Jimmy John's, we'll finally learn what makes their mayo so tangy!")
Noncompetes are burdensome, often end in litigation, and were designed for a time when employees aren't nearly as transient as they are today. Does your business really need them?