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The Restraining Practice of Employers of Imposing Non-Compete Agreements on Low Wage Workers may be held Contrary to Public Policy and Unenforceable.

On July 18, 2014, employees at Jimmy John’s restaurant filed a FLSA class action in the U.S. District Court of Northern District of Illinois against the sandwich chain alleging wage theft. The employees further alleged that the “Confidentiality and Non-Competition Agreement” Jimmy John’s required employees to sign before they could start working was “oppressive, overly broad, unreasonable, against public policy, void as a matter of law and unenforceable.”

Jimmy John’s non-compete agreement restricts employees from working for any type of business for two years within a 3-mile radius of any of the 2,000 Jimmy John’s Sandwich locations nationwide that generates more than 10% of its revenue from sandwiches. If enforced, the clause would dramatically limit a worker’s ability to find employment after working for Jimmy John’s.

Non-compete agreements are typically reserved for managers or high-level employees who could exploit a business’s inside information by working for a competitor; however, Jimmy John’s agreement applies to low-wage sandwich makers and delivery drivers.

Low-wage, interchangeable “sandwich artists” do not have the type of skills or insider information that justify such an agreement. The agreement’s enforcement would merely thwart and frustrate employees’ job searches. Such contracts are simply a novel attempt to control further and intimidate employees.

In order for the court to enforce the agreement, Jimmy John’s will need to demonstrate that the agreement’s purpose is to legitimately try to protect the company, and that the clause is reasonable and wouldn’t put an undue burden on workers.

For instance, in Natural Organics Inc. v. Kirkendall, plaintiff brought action against former employee and former employee’s new employer alleging a breach of the non-compete agreement. The employee worked for the company selling vitamins and dietary supplements. When he was hired for the position, the employee signed a nondisclosure and noncompetition agreement, which prohibited employment with a competitor of the company for a period of 18 months from the date of termination of employment, and where the employee is a sales person, for an additional 18 months within 300 miles of the boundaries of his or her territory.

The company alleged that the employee, due to his position as a salesman, had been exposed to reports containing detailed sales information concerning the company’s customers. However, the court found that the employee, after leaving the company, did not physically appropriate, copy, or intentionally memorize any purported confidential business information. In addition, the court found that “an employee’s recollection of information pertaining to specific needs and business habits of particular customers is not confidential.” Further, the court stated that the company had failed to prove how the non-compete agreement was necessary to protect the goodwill of its clients or that the employee has used or threatened to use any protected trade lists or confidential customer lists. Therefore, the Supreme Court, Appellate Division, Second Department, New York held the non-compete agreement to be void and dismissed the complaint.

Courts not only look at the purpose and the time span of non-compete agreement, but also look at the geographical area to which the non-compete agreement applies. Courts usually give greater weight to the interests of the employer in restricting competition within a confined geographical area. For instance, in BDO Seidman v. Hirshberg, the Court of Appeals of New York declared part of a non-compete agreement to be overbroad because the company was a national firm seeking to enforce the agreement within a market consisting of the entirety of a major metropolitan area. A court may then get rid of the parts of the non-compete agreement that are unreasonable.

Non-compete agreements are only enforceable to the extent that they protect against misappropriation of the employer’s trade secrets or of confidential customer lists, or protect from competition by a former employee whose services are unique or extraordinary. Indeed, under New York law, the general public policy favoring robust and uninhibited competition should not give way merely because a particular employer wishes to insulate himself from competition.

If you believe your rights have been violated, please contact The Harman Firm, LLP.

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