This week, Jimmy John’s Enterprises, LLC (Jimmy John’s), a sandwich chain known for its “freaky fast” delivery service, promised to end its practice of forcing its employees to sign non-competition agreements. In doing so, Jimmy John’s settled a June 2016 lawsuit filed by the Attorney General of the State of Illinois, which accused the Charleston, Illinois-based sandwich company’s non-competition agreements as unenforceable under Illinois law.
For years, Jimmy John’s required its employees to sign non-competition agreements. Specifically, as a condition of employment, employees were required to agree in writing that for a two year period post-employment, they would not work at another business that 1) earns ten (10%) percent of its revenue from selling subs or deli sandwiches, and 2) was located three miles from any Jimmy John’s store (regardless of the location at which the employee worked). The Illinois Attorney General alleged that such an agreement was unenforceable under Illinois law because it was not premised on a legitimate business interest or narrowly tailored.
As part of the settlement, Jimmy John’s agreed to rescind all signed non-competition agreements and inform all of its current and former employees that the agreements they signed are unenforceable. The company also agreed it will not require new hires to sign any agreements restricting them from working for other sandwich shops. Finally, Jimmy John’s agreed to pay $100,000 to the State of Illinois for the purpose of increasing public awareness about the legal standards for such restrictive covenants.
Jimmy John’s likely intended to change its practice of requiring employees to sign non-competition agreements at the end of this year. Starting on or after January 1, 2017, the Illinois Freedom to Work Act prohibits Illinois employers from requiring employees who make less than $13 per hour to sign non-competition agreements.
This settlement in Illinois comes on the heels of a similar settlement between Jimmy John’s and the Attorney General for the State of New York. Earlier this summer, Jimmy John’s agreed to stop using non-competition agreements in New York, and further promised it would not enforce such agreements against current or former employees.
These settlements should remind employers that non-competition agreements are not appropriate for all employees, even if reasonable in duration and scope. In states like Illinois, non-competition agreements must be narrowly tailored and premised on a legitimate business interest to be enforceable. Also, some states and courts disfavor non-competition agreements as restraints on trade, especially where they restrict lower wage earners who do not receive confidential information or trade secrets. Thus, employers should review the use of non-competition agreements with counsel prior to their implementation.