The Huffington Post reported earlier this week that Jimmy Johns, the purveyor of “gourmet” sandwiches, requires all of its delivery drivers to sign a non-compete agreement stating that the employee cannot work for another business which derives 10% of its revenue from selling sandwiches that is located within three miles of any Jimmy John’s restaurant for a period of two years following the delivery driver’s termination of employment. A class action law suit has been filed against Jimmy Johns alleging that these covenants are an unlawful restraint on trade.
There are two basic rationale’s supporting the enforcement of non-compete agreements. First, if an employee has access to trade secrets or other important intellectual property, the employer has a legitimate interest in preventing the employee from setting up shop elsewhere and misappropriating the intellectual property. Second, the employer has made an investment in the employee by providing training and incurring other costs, and this investment should be protected.
The argument against non-competes is that individuals must have a right to make a living (the “pursuit of happiness” according to Jefferson), and a non-compete that unduly interfered with this right is not enforceable. Consequently, even in the states where non-competes are enforceable, they must be reasonably limited in location, time and scope. Georgia by statute has stated that a 2 year limitation is reasonable, but the implication of this rule is that anything over 2 years will be suspect.
Applying these basic rules to the Jimmy Johns’ non-compete, I suspect the plaintiffs will prevail in their litigation. First, neither of the two primary justifications for non-competes applies to delivery drivers in that they do not have access to valuable trade secrets and the company has not made a significant investment. Second, although the time limitation set forth in the non-compete may be allowed under local law, a location of within 3 miles of any Jimmy John’s restaurant anywhere appears very problematic. Further, the reasonable scope limitation appears to have been omitted. Typically, the scope can only be the actual functions the employee was performing. Thus, Jimmy Johns could not prevent a driver from going to another restaurant and providing different services (e.g. a driver who works part time at Jimmy Johns while going to college should be allowed to take an accounting position with a rival restaurant because the scope of work is completely different).
One question that frequently comes up with respect to non-competes is what is their underlying purpose. I strongly suspect Jimmy Johns has never sued a former driver for violation of this non-compete agreement, and if the non-competes are not enforced, why does this litigation matter? The answer is that non-competes serve two purposes. First, they supply the theoretical right to the employer to sue the employee if the employee violates the terms of the agreement. Except for highly paid key employees, this theoretical rights is rarely pursued. The second, more insidious purpose of non-competes is to chill employee job movement. Because an employee will frequently not know if a non-compete agreement is enforceable, the employee may refrain from taking a job with a competitor because the employee does not want to risk litigation.
Non-competes can serve an important purpose, but, in order to be enforceable, they must be carefully tailored to the employee. If you have a question about your employment agreement or need one drafted, please contact Douglas Park Law.