Hunton Retail Law Resource

In December 2014, the New York Attorney General’s Office initiated an investigation into Jimmy John’s corporate office and its New York franchises. Jimmy John’s is a sandwich shop with franchises throughout New York and the United States. The investigation in New York concerned whether the use of a non-compete clause that barred departing employees from taking a job with any employer within two miles of a Jimmy John’s store that made more than 10 percent of its revenue from sandwiches was legal.

The New York Attorney General’s office concluded that the non-compete agreement was unlawful and void. Last month, Jimmy John’s settled with the Attorney General’s office and agreed to stop using the agreements in the hiring packets distributed to its franchisees in New York. Jimmy John’s further agreed to void past agreements and to discontinue using the non-compete agreements in New York. New York law only permits the use of non-compete agreements in very limited employment situations, such as to protect a trade secret from disclosure or for employees with uniquely special skills.

In the press release, Attorney General Eric T. Schneiderman said, “Non-compete agreements for low-wage workers are unconscionable. They limit mobility and opportunity for vulnerable workers and bully them into staying with the threat of being sued. Companies should stop using these agreements for minimum wage employees.”

Jimmy John’s settlement and lawsuits throughout the country related to using non-compete agreements to prohibit low-wage and/or low-level employees, such as hair stylists, dog-sitters, camp counselors and delivery drivers, from obtaining employment with a competitor has raised questions about the proliferation of non-compete agreements. Retailers should consider if the non-compete agreement is limited in terms of geography, whether the time period of the prohibition is reasonable, whether a legitimate business interest is being protected and whether the employee will have access to confidential information or trade secrets.

Because non-compete law is mostly state-law based, retailers, particularly those with operations in different states, are encouraged to consult with legal counsel regarding the legality of using a non-compete agreement for their employees.