By Eric B. Meyer
My Facebook and Twitter feeds were blowing up yesterday with links to articles at NYTimes.com, The Huffington Post, and Jezebel about how the Jimmy John’s sandwich chain supposedly makes its sandwich makers and delivery drivers sign non-competition agreements.
These agreements purport to preclude employees from working for certain nearby competitors for two years after their employment with Jimmy John’s ends.
I’m not going to comment specifically on Jimmy John’s and its purported practice other than to say that I work in Philadelphia and it would be sacrilege to let a “sub sandwich” pass between these lips. But, I do have a few general pointers from employers about restrictive covenants.
- The law on restrictive covenants varies from state to state. Some states are more inclined to enforce them. Others, like California, ban them entirely. Some states, like Pennsylvania, require that restrictive covenants be entered into when employment begins. Otherwise you need to provide additional consideration to the employee (a raise, bonus, promotion, etc.) to support a covenant. Other states, like New Jersey, say that continued employment is enough consideration to support the covenant.
- Do not rely upon oral agreements or put a non-competition “agreement” in an employee handbook. It should be a standalone agreement.
- Generally, restrictive covenants must reasonable in both time and geography. In Pennsylvania, for example, a two-year non-compete is generally reasonable. So is a 3-mile restriction.
- Usually (always?), there must also be a legitimate business reason to enforce the agreement. So, just because a restrictive covenant may be reasonable in both time and geography does not mean a court will enforce it. I can understand why a company would want to preclude a high-level executive with lots of education, training, exposure to business strategy, customers, etc. from going to work for a competitor. The goodwill hit alone could cause irreparable harm. But, an entry-level employee with basic skills and no other way to make a living? Hmm….
- If you are going to have every sign a non-compete, be careful of selective enforcement. By enforcing some agreements and not others, it strengthens the arguments of those individuals against whom you seek to enforce the agreement that there is no legitimate business reason to support the agreement.
Above all, where restrictive covenants are concerned, get some legal advice before you get an employee to sign.
This was originally published on Eric B. Meyer’s blog, The Employer Handbook.