According to a recent report from the U.S. Treasury Office of Economic Policy, 18 percent, or 30 million, of American workers are currently covered by non-compete agreements. In addition, 37 percent of American workers have been subjected to a non-compete agreement at some point during their career. These non-compete agreements are not only used to restrict senior executives or highly-skilled professionals, but also to restrict employees sometimes making less than $40,000 per year. The report postulates the many detriments that non-compete agreements have on employees; such as confusion or lack of transparency, lack of bargaining power, and the inability to exchange knowledge and ideas which encourage economic growth.
On June 8, 2016, the Attorney General of the State of Illinois filed a complaint against Jimmy John’s, alleging that the company’s non-compete agreements violate the Consumer Fraud and Deceptive Practices Act. The complaint asserts that Jimmy John’s requires their at-will-employees sign non-compete agreements, which prevent employees from working for any employer who derives 10 percent or more of its revenue from “deli-style” sandwiches. These non-compete agreement are in effect for 2 years and apply to any employer located within 2 miles of any Jimmy John’s store within the United States. The complaint argues that the agreements are unenforceable under Illinois law since Jimmy John’s has no legitimate business interest that justifies the non-compete agreements.
The Illinois Attorney General, not Jimmy John’s employees, is seeking relief. This complaint is evidence that the government is taking a more proactive role in ensuring the fairness of company practices and their use of non-compete agreements. As reaffirmed by the U.S. Treasury’s report, the main purpose for non-compete agreements is to promote innovation by preventing employees with trade secrets from transferring technical and intellectual property of companies to rival firms, even in circumstances where there are trade secret laws to protect companies.
Employers will be interested to see how courts respond to the Attorney General’s argument that essentially some types of employees should never be held to a non-compete. In the meantime, employers with existing non-compete agreements should review their purpose for requiring such agreements and ensure the agreements are not unreasonably restrictive.