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Posted on Wednesday, October 22, 2014

Sandwich Secrets “They” Don’t Want You to Know About: Have Non-Competes Gone Too Far?

Litigation over non-compete provisions continues to make up a large segment of the lawsuits arising out of the employer-employee relationship, and that trend does not appear to be reversing itself any time soon. Some companies are relentless in their quest to gain an edge over the competition, and many are doing so in the name of protecting legitimate business interests by requiring all new employees—in some instances, even lower-level workers making the minimum wage—to sign non-compete agreements.Jimmy John’s, the popular sandwich shop chain with over 2,000 locations, now requires all employees to sign non-compete agreements that prohibits them from taking a large number of jobs during and for a period of two years following their employment. Typically reserved for executives, managers, and other high-level employees possessing sensitive business information, non-compete provisions are designed to prevent employees of one company from jumping to an industry competitor and divulging their insider information. At Jimmy John’s however, the non-compete agreements extend to low-wage sandwich makers and delivery drivers as well—employees who are several steps removed from the corporate decision-making process and are unlikely to have any sensitive business information that would be of value to an industry competitor.

The extremely broad non-compete by Jimmy John’s would prevent employees from working 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 within three (3) miles of either [the Jimmy John’s location they are working at] or any such other Jimmy John’s Sandwich Shop.” Because Jimmy John’s operates over 2,000 locations in 44 states and the District of Columbia, the blackout area in which a former Jimmy John’s employee would be prohibited from working for any business that sells sandwiches covers over 6,000 square miles in many of the country’s largest metropolitan areas—even if that employee did nothing but make sandwiches while working there.

Individual Jimmy John’s franchisees do have the option of not requiring their own employees to sign the non-compete agreement, and it remains to be seen whether Jimmy John’s will seek to enforce the provision against former employees. The non-compete does not appear to have been challenged yet, but would probably not be enforceable in Virginia courts. Compared to existing Virginia non-compete law, the Jimmy John’s non-compete is arguably overbroad in terms of timing (2 years), geographic scope (within 3 miles of any Jimmy John’s nationwide), in its definition of a “competitor” (any business deriving 10% of its revenue from selling sandwiches), and in its applicability to all company employees (regardless of whether they have legitimate business information to protect). While the provision would likely be struck down in Virginia courts, the very fact of its existence suggests that we won’t be seeing a downturn in non-compete litigation any time soon.

Although prospective Jimmy John’s employees may be put off by the overbreadth of these non-competes, we expect that some courts, especially those in Virginia, will find these provisions equally hard to swallow.

Frank Gulino is an associate attorney at Berenzweig Leonard.  He can be reached at FGulino@BerenzweigLaw.com.

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