Recent media reports that Jimmy John’s Gourmet Sandwich Shop requires its hourly employees to enter into overly broad restrictive employment agreements has caught the attention of congressional officials, prompting reevaluation of the use of non-compete agreements in employment. According to the Huffington Post, Jimmy John’s requires its hourly workers, who prepare sandwiches and make deliveries, to enter into a non-compete agreement precluding them from working for any company earning ten percent or more of its profit from the sale of sandwiches within three miles of any Jimmy John’s for a period of two years following cessation of employment. These reports have prompted several House members to seek an investigation by the Department of Labor and Federal Trade Commission into the food chain’s restrictive covenants which these House members claim are “inconsistent with trade and labor laws.”
Generally speaking, restrictive covenants are evaluated based upon state law. In Arizona, restrictive covenants are enforceable only if no greater than reasonably necessary to protect the employer’s legitimate business interest and if that interest is not outweighed by an undue burden upon the employee. Restrictive employment agreements must be narrowly tailored to be enforced in Arizona. A non-compete agreement must contain both a reasonable duration and a reasonable geographic scope. Employers who overreach, such as Jimmy John’s, may find their agreements stricken as a matter of law.
In Orca Communications Unlimited v. Noder, the Arizona Court of Appeals held that the confidentiality, non-compete and non-solicitation provisions of Orca’s employment agreement were invalid as they were over broad, sought to protect information available to the public, or otherwise protected more than their legitimate business interests. In that case, the Court found the employer’s definition of confidential information, which included all information learned by the employee during her employment, was over broad and unenforceable. In so holding, the Court explained that even though the employer excluded any “publicly known” information, its definition continued to include information available through “substantial searching of published literature” or “pieced together.” Treating the confidentiality provision as a non-compete, the Orca Court determined that any interest Orca may establish would be outweighed by the burden upon the employee, noting an unreasonable twelve month duration and the absence of any geographical restriction to invalidate the provision.
Similarly, the Orca Court invalidated the non-compete and non-solicitation provisions finding each to be over broad and excessive to protect Orca’s legitimate business interests. Instead of restricting the non-compete and non-solicitation provisions to a reasonable scope, the Court determined that the provisions as written precluded the employee from working anywhere within the industry for which Orca did not have a protectable interest. Along the same lines, the Court held that Orca did not have a protectable interest in relationships with “potential customers” or “former customers.”
Relying on Orca and prior Arizona case law, Arizona Jimmy John’s employees should not be too concerned about the draconian two year non- compete as reported. It is highly unlikely that an Arizona court would enforce a non-compete agreement with a two year duration for any employee, let alone an hourly employee delivering sandwiches. The employer’s legitimate protectable interests can easily be addressed through far less oppressive methods.
It is important to consult experienced employment counsel when drafting or entering into employment agreements. Faulkner Law Offices has decades of experience drafting and litigating restrictive covenants and we welcome the opportunity to serve you.