The Illinois Attorney General filed suit in June 2016 against Jimmy John’s for its use of non-competes with low-wage workers. This suit – which appears to be the first of its kind – alleges Jimmy John’s use of non-competes violates Illinois law and hurts Illinois residents and businesses by limiting the pool of available workers and artificially suppressing wages.
The Jimmy John’s non-compete made headlines last year after a current employee and a former employee together filed a class action seeking to invalidate that provision. Their case was dismissed on standing grounds. The court did not reach the question of whether the non-compete was valid under Illinois law.
Though Jimmy John’s won that skirmish, the issue clearly did not go away.
A 2-Year Non-Compete For Store Employees & A Broken Commitment To Stop Using It
The Illinois AG’s suit alleges Jimmy John’s required low-wage, at-will store employees to sign non-compete agreements as part of the standard new hire packet. The non-compete prohibited the employee for 2 years from working for another business that earned 10% of its revenue from selling sandwiches located within 3 miles of any Jimmy John’s location (or 2 miles in another version of the non-compete).
The suit further alleges Jimmy John’s represented to the Illinois AG that it had changed its non-compete policy in April 2015 to no longer require store employees to sign non-competes and had removed the non-compete from its new hire packet. Jimmy John’s also represented that it did not intend on enforcing any non-competes previously signed by store employees.
Jimmy John’s later informed the Illinois AG it had not implemented this policy change and had taken no steps to remove the non-compete from its new hire packet. Jimmy John’s also took no formal steps to rescind the non-competes previously signed by store employees or to communicate its policy change.
The Illinois AG’s Authority To Step In? Illinois Consumer Fraud Act & Parens Patriae Authority
Non-compete cases are almost always between employers and employees. The Illinois AG asserts two grounds for the government‘s authority to step in: (i) the Illinois Consumer Fraud and Deceptive Business Practices Act (“Illinois Consumer Fraud Act”) and (ii) its common law power to bring actions “in parens patriae to preserve the economic well-being of Illinois residents and businesses….”
- The Illinois Consumer Fraud Act makes unlawful “unfair methods of competition” and “unfair or deceptive acts or practices.” The Illinois AG alleges Jimmy John’s practice of requiring store employees to sign unenforceable non-competes constitutes “unfair conduct” in violation of the Illinois Consumer Fraud Act. In addition, the complaint alleges Jimmy John’s engaged in “deceptive conduct” by failing to inform current and former store employees it has no intention of enforcing the non-competes they signed.
- Per Black’s Law Dictionary, parens patriae means “parent of the country.” Black’s further explains that state attorney generals have parens patriae authority to bring antitrust claims on behalf of state residents. The Illinois AG alleges Jimmy John’s use of an “unreasonable, unconscionable and unenforceable” non-compete hurts Illinois residents and businesses by limiting the pool of available workers and suppressing the upward mobility of workers and their wages. As such, the Illinois AG has “a lawful right to prevent the imposition of unenforceable non-competition agreements.”
The suit asks for a declaratory judgment that the Jimmy John’s non-compete is void and unenforceable. The suit also asks for other relief, including (1) an injunction against using any non-competition agreement with a store employee, (2) restitution for harm to Illinois consumers and businesses, (3) disgorgement of any benefits from its unlawful practices and (4) a civil penalty of not less than $50,000 per violation.
Non-Competes Are Becoming A Political Football
Although apparently the first such suit by a state attorney general, the Illinois AG’s interest in non-competes is simply the most recent example of the increasing governmental involvement in non-competes discussed previously in this Blog. The themes sounded by the Illinois AG’s suit – suppression of wages, the use of manifestly unenforceable restrictions, lack of transparency with employees – are the same as the concerns expressed in the recent White House report on non-compete agreements.
Non-compete issues are increasingly being cast as a matter of public concern, rather than simply a matter between employer and employee. The impact on the public has long been a factor considered by courts in evaluating non-competes, but the idea that the misuse of non-competes is a matter of public concern that requires government intervention appears to be a new one.
It would not be surprising if other state officials – particularly in blue states – consider similar actions. A big company using a burdensome non-compete with its hourly workers seems like an easy target for a politician looking to score pro-worker points.
What The Illinois AG’s Suit Means For Companies That Use Non-Competes
That being said, it is not time to push the panic button. While the Illinois AG says it is investigating other companies, Jimmy John’s presumably did itself no favors by telling the Illinois AG it had discontinued using the non-compete, but then failing to implement the policy change. (A cynic would add that it didn’t help that the owner of Jimmy John’s is a well-known contributor to conservative political causes in a very blue state.)
Nevertheless, smart employers will review their use of non-competes. Where possible, employers should use non-solicitation and confidentiality restrictions rather than true non-competes. Employers should also avoid one-size-fits-all agreements. A restriction that is appropriate for managerial employees most likely isn’t right for salespeople. And it probably never is a good idea to require an hourly worker to sign a non-compete.
James Komie is an attorney with Howard & Howard in Chicago, IL. He regularly writes and speaks on new developments and trends in the law regarding non-competes and trade secrets, as well as issues relating to the financial services industry.