How do courts determine the validity of a non-compete agreement?
Most businesses need employees to operate efficiently. But, most employees do not stay with the same employer for their entire careers. Therefore, some employers worry that these former insiders will use the information they obtained to create unfair competition when they begin working for someone else.
In order to avoid this for a specified period of time, some employers utilize non-compete agreements also known as restrictive covenants, in order to limit a former employees work opportunities after separating from the business. While these agreements are legal in most states, in order to be considered valid they must not be overly restrictive. One company is currently being scrutinized for its use of these agreements.
Jimmy John’s is a sandwich franchise with locations all over the United States. The company employs all types of workers and apparently requests that even low-level workers sign a non-compete agreement. The terms of the agreement include that if the worker leaves that they cannot be employed by a competitor for two years. A competitor is defined as any entity that makes 10% or more from the sale of sandwiches and operates within a two mile radius of any Jimmy John’s. These terms essentially prevent workers from finding employment with any other business that sells sandwiches and some think that these terms are too limiting.
The New York Attorney General has become involved and has initiated an investigation into Jimmy John’s business practices in relation to this matter. It seems that the Attorney General thinks that these agreements might violate the law. Usually, non-compete agreements are used to stop higher level employees who might have access to sensitive, valuable or confidential information, from using it to unfairly compete. As low level workers at Jimmy John’s do not have access to this type of information, it seems that the use of these agreements might be stifling the free market unnecessarily. Therefore, the terms of the non-compete agreements used by the sandwich shop might be overly restrictive making the agreements invalid.
Thomas M. Lancia works with employers and employees relating to non-compete agreements, trade secrets and employment discrimination in the New York City area. Contact him by calling (212)964-3157 today for a consultation.