Often times, employers require their employees to sign non-compete agreements that are designed to restrict an employee’s post-employment competition. Typically, these agreements restrain employees from competing with the employer for a certain period of time in a certain geographic area. Non-compete agreements are most commonly found in employment contracts and are not limited to just high level executives. Last year, the Huffington Post reported that Jimmy John’s was requiring its $8 an hour sandwich artists to sign a two-year “non-competition” agreement that was overly oppressive.
The Agreement states: “Employee covenants and agrees that, during his or her employment with the Employer and for a period of two (2) years after … he or she will not have any direct or indirect interest in or perform services for … any business which derives more than ten percent (10%) of its revenue from selling submarine, hero-type, deli-style, pita and/or wrapped or rolled sandwiches and which is located with three (3) miles of either [the Jimmy John’s location in question] or any such other Jimmy John’s Sandwich Shop.”
Valid Non-Compete Agreements in Texas
To be enforceable under Texas law, non-compete agreements must:
- Protect a legitimate business interest;
- Contain reasonable limitations as to the scope of activity to be restrained;
- Contain reasonable geographic limitations; and
- Contain reasonable durational limits.
If a sandwich artist left Jimmy John’s and went to work for a Subway in another town, Jimmy John’s could technically file a suit seeking to enjoin that employee from working for Subway as long as that Subway was within three miles of another Jimmy John’s location. Obviously, this presents several legal hurdles for a Texas judge to consider, such as:
- What is Jimmy John’s legitimate business interest that needs to be protected?
- Is making a sandwich really a trade secret or confidential that would justify a restraint?
- Is 3 miles from any Jimmy John’s location a reasonable geographic limitation?
- Is two years a reasonable time to prevent competition?
So far, it doesn’t appear that Jimmy John’s has taken any action to enforce its non-compete agreements. It will be interesting to see if a Texas judge ever rules on the enforceability of the Jimmy John’s non-compete agreement.
Bottom Line
If you are an employer or an employee that is considering a non-compete agreement, you should talk to an attorney to make sure that it protects a legitimate business interest, contains reasonable limitations on what is being restrained, is reasonable with its geographic and durational limits. Otherwise, it will be unenforceable.
