When professional colleagues first sent me links to reports that Jimmy John’s requires new employees to sign two-year noncompete agreements, I thought “The Onion is somehow behind this.” But, according to nationwide reports, this is not a joke.
According to numerous reports, this is the how the covenant reads: “Employee covenants and agrees that, during his or her employment with the Employer and for a period of two (2) years after … he or she will not have any direct or indirect interest in or perform services for … any business which derives more than ten percent (10%) of its revenue from selling submarine, hero-type, deli-style, pita and/or wrapped or rolled sandwiches and which is located with three (3) miles of either [the Jimmy John’s location in question] or any such other Jimmy John’s Sandwich Shop.”
In most states noncompete agreements are disfavored and only permitted inasmuch as they are drafted to reasonably protect a legitimate interest of the employer. Those legitimate interests are usually identified as either: (a) the protection of existing customer relationships; or (b) the protection of competitively-sensitive information or trade secrets.
My law firm orders sandwiches from Jimmy John’s on occasion. Their #9 submarine is pretty good. But, and this is rarity for yours truly, I will not be spending any money at Jimmy John’s until I hear a good explanation from the company why they felt the need to require sandwich makers and delivery people to sign a noncompete agreement. I’ll spend my money at Which Which? instead.
In all the reports that I’ve read about this story, which apparently arose because of a class-action lawsuit challenging the manner in which Jimmy John’s treats its workers, I’ve not seen or read any mention of a rather nefarious influence that noncompetes have with employees. That influence is what we might call the in terrorem effect or the apprehension of possible danger in the event that the covenant is breached. Not only are employees who signed such covenants fearful of litigation that could be brought against them but new potential employers routinely shut down conversations with candidates who have previously signed noncompetes because the possibility for litigation, even bogus litigation, is too costly to bear.
Another not-routinely-identified impact that noncompetes have is that they impair an employee’s ability to bargain for better wages and benefits. Management feels emboldened by responding to a wage increase request and sometimes responds: “But where are you going to go? You signed an agreement with us that locks you down in this market – you’ve literally promised not to work in the marketplace.”
There is a proper role for noncompete covenants in our ever-evolving economy in which customer relationships are increasingly fleeting and sensitive information is often key to future business success. However, when your customers are able to choose from a panoply of options for a virtually commoditized sandwich and there’s no real secret how to put the meat on the bread and then add the mayonnaise or follow directions on a GPS to drop the sandwich off, a noncompete covenant is neither needed nor legally defensible.