An employer will often say their most important resource is their people. Sometimes this is mere puffery, for some employees, they really mean it. And these employees often have to sign restrictive covenants, such as non-competition or confidentiality agreements.
These agreements limit where such an employee can go after they leave their current employment and what they can discuss. For senior managers, who often have insight to the fundamental strategy and long-term plans of a business, in addition to contacts with that employer’s customers, or those with proprietary technical knowledge of trade secrets or internal processes, this makes sense.
Even for these employees, the restrictions need to be related to a legitimate business purpose and reasonable in their time and geographic restrictions. You could not prohibit an employee from ever working in a similar line of work, anywhere in the nation.
Use of non-compete clauses vary. California for instance, prohibits restrictive covenants in employment altogether, while Arizona permits them. Recent litigation involving a class action of Jimmy John’s employees points to the type of non-compete clause that is likely to be found unenforceable.
The non-compete clause in question prohibits any worker from being employed for two years with any entity that makes 10 percent of its revenue from sandwich sales.
This very broad definition of competitors would likely make the clause suspect. However, given that a sandwich maker would have practically no knowledge that would be unique to Jimmy John’s, the threshold question may be is there a legitimate business purpose for this non-compete clause.
Employers should discuss with their attorneys if a non-compete clause is necessary and how to tailor it to increase the chances that it would be found enforceable by a court, should they ever need to litigate the issue.
Slate.com, “Jimmy John’s Makes Its Employees Sign a Ridiculous Non-Compete Agreement” Alison Griswold, October 15, 2014
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