Fast food non-compete agreements?
Fast food is very secretive. Colonel Sanders Kentucky Fried Chicken has eleven secret herbs and spices. Bakers have attempted to reverse engineer Mrs. Fields Chocolate Chip Cookie recipe, but it remains a closely held secret. Coca Cola has had a secret formula since 1886. And now, apparently, Jimmy John's thinks its sandwich-making process is top secret.
It has recently come to light that some of Jimmy John's sandwich franchises required their employees to sign non-compete agreements. To have an enforceable non-compete agreement in Texas (and many other states), the employer has to show that it provided the employee with something that gave rise to the need to keep them from competing (i.e., trade secrets). So does Jimmy John's have some sort of secret bread recipe? Or maybe there is a secret "topping to condiment ratio" that makes Jimmy John's sandwiches so tasty, or they've unlocked a logistical secret behind their "freaky fast" delivery? Either way, in order to have a viable legal reason to support a non-compete agreement in Texas, Jimmy John's must have some business secrets that it provides to its essential employees or executives that required protection.
While there may be some instances in which Jimmy John's non-compete agreements could have a legitimate and legal use, it is the manner in which Jimmy John's is using its non-compete agreements that is controversial and unpopular. Several news sources report that some franchises have required hourly employees, such as sandwich makers and delivery persons, to sign non-compete agreements. The non-compete agreements prohibit these hourly workers from working for a competitor for two years after they have left Jimmy John's. The agreement defines competitors to mean a business that makes at least 10% of its revenue from sandwich sales and is within 3 miles of a Jimmy John's location. Considering the number of Jimmy John's locations, this could be a rather broad restriction and quite punitive to the person that spreads mustard on your sandwich or rings up your purchase at the cash register.
At this time, there are no known cases of Jimmy John's attempting to enforce its non-compete agreement on hourly employees. Jimmy John's may never have had any plans to enforce such an agreement against hourly employees; rather, as the labor market heats up, it could be using the agreement as a tool to keep its employees. Nevertheless, news and social media are in an uproar over the use of the non-compete agreement on "rank-and-file" employees. From a legal perspective, it is hard to imagine many scenarios in which a sandwich maker or delivery person would receive and utilize "trade secrets" associated with their jobs sufficient to warrant the use of a non-compete agreement to protect those secrets. Considering the expense associated with judicially enforcing a non-compete agreement, Jimmy John's agreement could be more trouble than it is worth.
So while some things in fast food or other service industry jobs are legitimate trade secrets worth protecting through the use of a non-compete agreement, businesses should carefully limit the use of such agreements for genuine trade secrets shared with only those employees that utilize the trade secrets as part of their job. As we can see from Jimmy John’s example, the blanket use of a non-compete agreement could cause a public backlash as well as a disincentive for others to come and work for them. With a highly competitive fast-food industry and the labor market heating up, other businesses should learn from Jimmy John’s mistake.