Is Jimmy John’s Non-Compete Enforceable Under Georgia Law?

Posted by Benjamin I. Fink on

A recent article in the Huffington Post ridiculed the use of non-competes by Jimmy John’s for its employees and those of its franchisees, including low-wage sandwich makers and delivery drivers. See “Jimmy John’s Makes Low-Wage Workers Sign ‘Oppressive’ Non-Compete Agreements” (Huff Post Business, October 13, 2014; http://www.huffingtonpost.com/2014/10/13/jimmy-johns-non-compete_n_5978180.html).

In the article, Huffington Post takes Jimmy John’s to task for imposing non-competes on its low-wage workers that prohibit the workers from working for competitors within three miles of any Jimmy John’s location.  Apparently, the definition of “competitor” in the agreements goes well beyond the Subways of the world.  It encompasses any business that is near a Jimmy John’s location and derives more than 10% of its revenue from selling sandwiches.

This got me thinking as to whether Jimmy John’s non-compete would pass muster under Georgia’s New Restrictive Covenant’s Act (the “Act”).  One of the selling points for the Act espoused by its proponents was that while non-competes would be more liberally enforced against executive-level employees, they would not be enforceable at all against lower level employees.  To supposedly accomplish this goal, the Act states that it is only applicable to certain types of employees, including “executive employees,” “key employees” and certain others involved in research and development or who are in “possession of selective or specialized skills, learning, or abilities or customer contacts, customer information, or confidential information who have obtained such skills, learning, abilities, contacts, or information by reason of having worked for an employer.”  O.C.G.A. § 13-8-51.

The Act also states that non-competes “shall not be permitted against any employee who does not, in the course of  his or her employment: (1) customarily and regularly solicit for the employer customers or prospective customers; or (2) customarily and regularly engage in making sales or obtaining orders or contracts or products or services to be performed by others; (3) perform the following duties: (A) Have a primary duty of managing the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof; (B) Customarily and regularly direct the work of two or more other employees; and (C) Have the authority to hire or fire other employees or have particular weight given to suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees; or (4) Perform the duties of a key employeeor of a professional.”  O.C.G.A. §13-8-53(a).

Thus, getting back to our Jimmy John’s example, is the worker at the cash register at a sub shop or who delivers sandwiches for the shop covered by the Act?  While the proponents of the Act claim that these types of people should not be covered, it is certainly possible that a court could construe the Act to cover such workers.  For example, the cashier and the delivery person both have customer contacts that they gain by working for Jimmy John’s.  They both may also have “customer information.”  This would bring them within the definition of “key employee” contained in O.C.G.A. section 13-8-51(8).  Moreover, the statement of exclusion in the Act likely does not apply, as those who answer the phones at the shop or those who work the cash register customarily and regularly engage in making sales for products (the sandwiches) to be performed by others (the people actually making the sandwiches).

The Huffington Post article illustrates the absurdity of the Jimmy John’s agreement.  An example is provided of a student who works at a Jimmy John’s in Illinois during high school.  Once he leaves for college at the University of Alabama, the Jimmy John’s non-compete forecloses him from working just about anywhere in Tuscaloosa that serves sandwiches, including, in theory the school cafeteria, because most of those places fall within three miles of a Jimmy John’s.

It appears the concerns expressed in the Huffington Post article are valid concerns in Georgia under the Act. Of course, whether any court would enforce such an absurd non-compete against such a worker has yet to be seen, but this merely points out that the wording of Georgia’s new statute is very broad and likely captures far more workers than the drafters say they intended.[1]

 

[1] 37 members of Congress recently requested the U.S. Department of Labor and the Federal Trade Commission to  look into Jimmy John’s practice of requiring “rank and file” workers to sign non-competes as a condition of employment.  Whether either of those federal government agencies will do so has yet to be seen.