Jimmy John’s case highlights non-compete agreement challenges
Employers need to be reasonable and not overreach.
A group of Jimmy John’s employees in Illinois are taking the sub shop to court over non-compete agreements they believe are unfair and should be discarded.
In addition to having its employees sign confidentiality agreements upon being hired, Jimmy John’s requires them to sign non-compete agreements that prevent them from going to work for a competitor within a three-mile radius for two years following their departure from the company.
While each state has its own statutes concerning non-compete agreements, Edward Bardelli, attorney at Warner Norcross, said Michigan’s non-compete laws are similar to those of Illinois, and the Jimmy John’s case highlights several issues local employers need to consider when developing these types of agreements.
“Although most states allow and enforce non-compete agreements, employers generally need to be able to articulate a competitive business interest at stake that requires the non-compete,” he said. “They can’t use a non-compete simply to prevent an employee from going to work for a competitor.”
Bardelli said there are three main factors an employer needs to consider: whether a non-compete agreement is necessary; the duration of the agreement; and its scope in terms of geography.
While an employer might think a non-compete agreement is necessary to prevent an employee from taking sensitive information to a competitor, often a confidentiality or non-solicit agreement is an effective route to protect the business — and an option judges are more likely to enforce because it’s less restrictive.
“That is usually someone who has access to confidential information, customer lists, really good contacts with key customers of your business, people who have access to research and development information, patents, trade secrets and that kind of stuff,” he said.
“Most judges would say, ‘Well, what’s the least restrictive means necessary to protect that information? Do you really need a non-compete? Is enforcing a confidentiality provision enough?’”
While sometimes a confidentiality agreement isn’t enough, often it is and a judge will end up rewriting an employer’s agreement to reflect that.
“You are just saying you can’t disclose confidential information, and those are generally enforced and pretty non-controversial,” he said. “When you are trying to stop someone from getting another job is usually the controversial part, and that is when judges hesitate because they … really need a good reason why this person can’t get another job in the industry where they work.”
Bardelli said judges look closely at the duration of an agreement and whether that particular timeframe is reasonable.
“The shorter duration is easier to get enforced,” he said.
Employers also need to be realistic about the scope of the agreement.
“The geographic scope really depends on the nature of the business,” he said. “You could have a nationwide geographic scope, (but) it has to match up with what your business is doing. If you are only in Michigan but you have a nationwide geographic scope to your non-compete, a court may not enforce that unless you have a good reason to be nationwide.”
In the Jimmy John’s case, Bardelli questions the reasonableness of the agreement.
“You can always find another delivery person. It’s not like you have this discreet list of customers who come into a Jimmy John’s.”
He said even if the employees had access to strategy or future growth plans, that type of information could be protected with a confidentiality agreement.
An additional factor employers should weigh is the impact of a non-compete on recruiting because having a non-compete might cause someone to go somewhere else for a job.
The likelihood of whether the employer will follow through and go to court if a former employee breaks a non-compete agreement should also be considered. He said a lot of times employers aren’t interested in spending the time or money to enforce the agreement.
His advice to employers is to consider whether a non-compete agreement is necessary for a particular job and whether it’s the least restrictive route they can take to protect sensitive information.
If it’s determined a non-compete is necessary, then the employer needs to make sure the agreement is reasonable in duration and scope and that it can make a case to a judge as to why the particular timeframe and scope are necessary.
“They need to be reasonable. You can’t overreach,” he said.