Jimmy John’s to pay $100,000 settlement, remove non-compete contracts

By Jean Lotus Staff reporter

Jimmy John’s CEO James John Liautaud stands in front of one of his sandwich shops. (Photo courtesy of Jimmyjohns.com)

The company franchising Jimmy John’s sandwich shops in Illinois will pay a $100,000 settlement and stop requiring non-compete agreements for low-wage sandwich makers and delivery drivers, Attorney General Lisa Madigan’s office announced Dec.  7.

Madigan’s office sued the fast-food companies Jimmy John’s Enterprises LLC and Jimmy John’s Franchise LLC in June, 2016 after investigating claims that Jimmy John’s required new employees to sign a contract that was “illegal and unenforceable under Illinois law.”

Around 300 of Champaign-based Jimmy John’s sandwich shops operate in Illinois, mostly under franchise licenses. Restaurant décor includes simple signs aimed at diners and workers, with entrepreneurial slogans such as “Life is not fair – Get used to it.”

“This settlement helps ensure Illinois’ workers have freedom to change jobs in order to seek better wages, further their careers and improve their lives,” Madigan said in a press release. “Workers in Jimmy John’s sandwich shops should know they are not subject to these unfair and unenforceable agreements.” The New York Attorney General made a similar settlement with the restaurant chain.

The Jimmy John’s “Employee Confidentially and Noncompetition Agreement” — leaked online in 2014 — required employees at any level to agree not to work for two years for any business that sold “any submarine, hero-type, deli-style, pita and/or wrapped or rolled sandwiches” within three miles of a Jimmy Johns location.

Employees who signed also agreed to tell their manager of any job offers from a competitor and pay any legal fees to enforce the flawed contract. The company later amended the contract to apply to any business within two miles of a Jimmy John’s.

When the restrictions were made public, critics noted if the restrictions were upheld by a judge, “blackout areas” around 6,000 restaurants where employees couldn’t work would include all major metropolitan cities and force sandwich-makers to look for work on the “edges of college towns.”

But Illinois has strict restrictions on when non-compete clauses are enforceable.

“Non-compete agreements must be premised on a legitimate business interest and narrowly tailored in terms of time, activity and place,” a statement from Madigan’s office said.

Around 25 million, or 1-in-6 U.S. workers without a college degree are impacted by non-compete clauses, according to 2015 White House and U.S. Treasury reports. Non-compete clauses are an impediment to free movement of workers and trade, the White House report contends. Non-compete agreements are unfair to low-level workers who do not have access to “trade secrets” and for whom the company has not invested costly training, the report said.

“Workers are asked to sign a non-compete only after accepting a job offer, when they have already declined other offers and thus have less leverage to bargain,” the White House study said.

Starting Jan. 1, 2017, The Illinois Freedom to Work will prohibit non-compete agreements for employees who earn less than $13 an hour.

Jimmy John’s had no response to the settlement, but when the lawsuit was filed in June, a company statement said that the company “made clear to the Attorney General that we would never enforce a non-compete agreement against any hourly employee that might have signed one.” The company said it failed to remove it from franchise hiring packets due to “administrative error.”

But Madigan’s suit said the company never informed present or former employees the contract was invalid. That’s one of the agreements in the settlement, along with notifying all franchisees that the “non-competes” are invalid.

The $100,000 fine will go to “education efforts” from the AG’s office to “raise public awareness regarding the legal standards for enforceability of non-compete

agreements and promote employer best practices.”

Jimmy John’s national sandwich empire generates around $8 million a year. Hourly wages of an entry level Jimmy John’s  “crew member” add up to about $14,500 per year, according to the Indeed.com employment website.

The company’s big-game-hunting CEO, James John Liautaud, has been a generous donor Illinois Republicans and Chicago Mayor Rahm Emanuel, giving more than $310,000 in the last 10 years in his own name. In 2011 and again in 2013, Crain’s Chicago Business reported Liautaud threatened to pack up his headquarters and leave Illinois for a more business-friendly state, like Florida. But the company’s headquarters remains in Illinois.



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