Sandwich Secrets “They” Don’t Want You to Know About: Have Non-Competes Gone Too Far?

Litigation over non-compete provisions continues to make up a large segment of the lawsuits arising out of the employer-employee relationship, and that trend does not appear to be reversing itself any time soon. Some companies are relentless in their quest to gain an edge over the competition, and many are doing so in the name of protecting legitimate business interests by requiring all new employees—in some instances, even lower-level workers making the minimum wage—to sign non-compete agreements.

Jimmy John’s, the popular sandwich shop chain with over 2,000 locations, now requires all employees to sign non-compete agreements that prohibits them from taking a large number of jobs during and for a period of two years following their employment. Typically reserved for executives, managers, and other high-level employees possessing sensitive business information, non-compete provisions are designed to prevent employees of one company from jumping to an industry competitor and divulging their insider information. At Jimmy John’s however, the non-compete agreements extend to low-wage sandwich makers and delivery drivers as well—employees who are several steps removed from the corporate decision-making process and are unlikely to have any sensitive business information that would be of value to an industry competitor.

The extremely broad non-compete by Jimmy John’s would prevent employees from working for “any business which derives more than ten percent (10%) of its revenue from selling submarine, hero-type, deli-style, pita and/or wrapped or rolled sandwiches and which is located within three (3) miles of either [the Jimmy John’s location they are working at] or any such other Jimmy John’s Sandwich Shop.” Because Jimmy John’s operates over 2,000 locations in 44 states and the District of Columbia, the blackout area in which a former Jimmy John’s employee would be prohibited from working for any business that sells sandwiches covers over 6,000 square miles in many of the country’s largest metropolitan areas—even if that employee did nothing but make sandwiches while working there.

Individual Jimmy John’s franchisees do have the option of not requiring their own employees to sign the non-compete agreement, and it remains to be seen whether Jimmy John’s will seek to enforce the provision against former employees. The non-compete does not appear to have been challenged yet, but would probably not be enforceable in Virginia courts. Compared to existing Virginia non-compete law, the Jimmy John’s non-compete is arguably overbroad in terms of timing (2 years), geographic scope (within 3 miles of any Jimmy John’s nationwide), in its definition of a “competitor” (any business deriving 10% of its revenue from selling sandwiches), and in its applicability to all company employees (regardless of whether they have legitimate business information to protect). While the provision would likely be struck down in Virginia courts, the very fact of its existence suggests that we won’t be seeing a downturn in non-compete litigation any time soon.

Although prospective Jimmy John’s employees may be put off by the overbreadth of these non-competes, we expect that some courts, especially those in Virginia, will find these provisions equally hard to swallow.

Frank Gulino is an associate attorney at Berenzweig Leonard.  He can be reached at FGulino@BerenzweigLaw.com.

Venue Selection Clauses Give Companies Leverage in Litigation

Many contracts, especially those between sophisticated parties, contain clauses specifying the state in which disputes arising out of the agreement must be litigated.  For instance, a company headquartered in Virginia would want to specify that all disputes be litigated in a predetermined county or federal court in Virginia.

While many courts have historically enforced forum selection clauses as written, others have been reluctant to enforce the provisions where doing so would compel litigation in a state that seemed extremely unfair based upon a consideration of “the convenience of parties and witnesses” and “the interest of justice.”  Resolving that circuit split, the Supreme Court of the United States recently decided the case of Atlantic Marine Construction Co. v. United States District Court for the Western District of Texas, addressing for the first time the extent to which forum selection clauses are enforceable and ultimately concluding that courts should enforce such clauses as written, in all but the rarest circumstances.

The Court’s decision alleviates an uncertainty previously faced by contracting parties.  In the wake of Atlantic Marine, parties can now confidently rely on the enforceability of the forum selection clauses contained in their agreements, and accurately predict the state in which they will litigate.  By resolving the circuit split in favor of the majority view, the Court has created an environment where parties are able to bargain over forum selection as efficiently as any other contract term; a party may, for instance, stipulate to litigating in a less convenient state in exchange for receiving a discounted contract price, or offer pay additional consideration in order to guarantee the opportunity to litigate somewhere they consider favorable.

Atlantic Marine marks an important point in High Court jurisprudence, and one that business leaders and other contracting parties should be aware of.  In addition to promoting the freedom of parties to bargain with one over contract terms going forward, this decision also provides certainty and predictability to forum selection clauses contained in existing agreements.  This predictability allows companies to keep costs down by litigating in a friendly state and being able to efficiently fend off motions to transfer venue.  “When the parties have agreed to a valid forum-selection clause,” Justice Alito writes in Atlantic Marine, “a district court should ordinarily transfer the case to the forum specified in that clause.”  Excepting “extraordinary circumstances unrelated to the convenience of the parties,” the Court’s decision allows contracting parties to place unprecedented confidence in their forum selection clauses, and maintain more control as they resolve business disputes.

Frank Gulino joined Berenzweig Leonard as an associate attorney in September 2013.  He can be reached at fgulino@berenzweiglaw.com.