Tuesday, November 4, 2014

Sandwich “Secrets” and Noncompete Agreements

The sandwich chain Jimmy John’s is getting some unwanted attention from the federal government amid reports that it requires its low-level employees to sign noncompete agreements as a condition of employment. The story was first reported by the Huffington Post, and it resulted in Congressional Democrats sending a letter to the Federal Trade Commission (“FTC”)  and the U.S. Department of Labor (“DOL”), describing the restrictive covenants as “clearly anti-competitive and intimidating to workers.”  The House Democrats are asking for the FTC and the DOL to investigate the sandwich chain.
Is Jimmy John’s doing something illegal by making its sandwich-makers sign noncompetes?  The answer is “no.”  A better question to ask is whether it’s a good idea, and the answer to that is “not really.” 
In most states, this type of “restrictive employment covenant” is generally not favored, but will be enforced by the courts if the terms of the agreement are reasonable under the particular circumstances.  Generally, there are three requirements: (1) the employer has a valid interest to protect; (2) the geographic restriction is not overly broad; and (3) a reasonable time limit is given.  The employer bears the burden of proving the reasonableness of the agreement.  The reason these types of agreements are construed very narrowly is that most courts recognize that an employer is not entitled to protection against ordinary competition from a departing employee.
Despite the efforts to make this into a “federal case”, noncompete agreements are typically governed by state law, which can vary depending on where you live or operate a business.  For instance, in the state of Georgia, a noncompete agreement will be enforced only if the employee possesses selective or specialized skills, learning, abilities, customer contacts, customer information, and confidential information that that they have obtained as the result of working for the company.  In Tennessee, Texas and Maryland, such agreements are enforceable only against employees who had access to or were entrusted with the employer’s trade secrets or other confidential or proprietary information.  In other states, such as California, noncompete agreements are generally unenforceable.
In most of the matters I’ve handled involving noncompete agreements, the employees in question were either highly trained individuals in technical fields, with direct access to their employer’s trade secrets, or were high level sales people with similar access to confidential customer information.  The lesson to be learned is that the use of these agreements should be confined to key employees whose knowledge of trade secrets and other confidential information could cause serious damage if they went to work for a competitor.  I would be hard pressed to come up with a scenario where a fast food employer would legitimately need  to have a crew worker enter into a noncompete agreement. 
While I would be the first one to laud the attributes of a well-made sandwich, I think it’s fair to say that the average Jimmy John’s employee making your “J.J. Gargantuan®” is not privy to any company trade secrets.  By having low-level employees sign noncompete agreements, the company does not appear to be protecting any valid interest, and instead has brought itself some unwanted attention (and ridicule).

Mark Fijman is a labor and employment attorney with Phelps Dunbar, LLP, which has offices in Louisiana, Mississippi, Florida, Texas, Alabama, North Carolina and London. To view his firm bio, click here. He can be reached at (601) 360-9716 and by e-mail at fijmanm@phelps.com