BFV Perspectives, Noncompete & Trade Secrets, | Jul 09, 2015

Putting the Brakes on Jimmy John’s: Bill Banning Non-Compete Agreements for Low-Wage Employees Introduced in Congress

Last October, sandwich chain Jimmy John’s came under fire for requiring that all employees, even low-paid sandwich makers, sign what the Huffington Post described as “oppressive” non-compete agreements. These two-year non-competes prohibited Jimmy John’s employees from working for any business which made 10% or more of its revenue off sandwich sales within three miles of a Jimmy John’s. Although it appears Jimmy John’s has never attempted to enforce one of these agreements, the story provoked an outcry in the media, Congressional investigations, and even an Onion article. The reaction to Jimmy John’s non-competes has prompted greater scrutiny of other companies requiring low-wage workers to sign restrictive covenants, like Amazon.

On June 3rd, 2015, Senators Chris Murphy (D-Conn) and Al Franken (D-Minn) introduced a bill proposing the “Mobility and Opportunity for Vulnerable Employees Act,”  abbreviated MOVE.[5] The MOVE Act, which some journalists have characterized as a reaction to the Jimmy John’s situation, bans the use of non-compete agreements with respect to any employee making less than $15 per hour or $31,200 per year. Under the proposed Act, those numbers would be adjusted year by year with inflation. Employers in violation of the Act would be subject to a maximum fine of $5,000 per employee who was the subject of a violation. The Act, which is cosponsored by Senator Elizabeth Warren (D-Mass) and Senator Richard Blumenthal (D-Conn), is designed to combat the “chilling effect on the upward economic mobility of low-wage workers” imposed by strict non-compete agreements.

The Act would not simply ban non-compete agreements for low-wage workers. It would also require employers who require their employees to sign non-compete agreements to disclose that fact to all prospective employees. That disclosure must be made prior to employment and at the beginning of the hiring process.

The MOVE Act, if it became law, could create interesting conflicts with State laws in this area, which vary widely from state to state. For example, the Act seems to tacitly approve non-competes for more highly paid employees, but in California all employee non-competes are banned by state law. The requirement that employers disclose non-competes to employees prior to hiring would theoretically bar “mid-stream” non-compete agreements, which many states allow.

Although it remains to be seen whether the legislation will move forward in Congress, the mere fact of its introduction demonstrates that non-compete agreements and the law surrounding them are currently drawing significant attention.

BFV Perspectives, Noncompete & Trade Secrets, | Jul 09, 2015