Who Should be Required to Sign a Non-Compete?

Non-Competition agreements are common place in the general business world and particularly in franchise world. But have non-compete covenants gone too far? The state of New York and members of Congress are asking just that question. The inquiry stems around Jimmy Johns franchisees. Members of Congress have asked the Federal Trade Commission [FTC] to investigate the non-compete practice of Jimmy Johns and New York Attorney General has stated intent to request non-compete agreements distributed by franchisor Jimmy Johns.
Non-competition agreements, by general definition, prevent the signer from working in or having ownership in a business that offers or sells the same products or services for a specified period of time.
Unfettered non-compete agreements are thought to be a restraint on trade and thereby are only permissible to enforce a legitimate business. The enforceability of non-compete agreements is governed by state laws. And, the enforceability varies among states. Most notably, for example, California does not enforce non-compete agreements. California is an exception to the general rule, however. Most states will find non- competes are enforceable if they are for reasonable time period [1-2 years] in reasonable radius [i.e. 25 miles from the place of employment or other locations] and narrowly define what constitutes a competing business.
In a letter, which was intended to be sent to the franchisor of Jimmy Johns, released to HuffPost by Attorney General investigator Schneiderman’s office asserted that Jimmy Johns’ practices may be disfavored by New York law in that they target employees including those that “make tuna sandwiches or deliver food by bike from getting a job a sandwich shop 3 miles from a Jimmy Johns and there are multiple locations in nearly every state. http://www.huffingtonpost.com/2014/12/22/eric-schneiderman-jimmy-johns-noncompete_n_6369146.html
As Huffington Post article points out, Jimmy Johns is not the only franchise with broad non-compete practices. Camp Bow Wow requires its dog sitters to sign non-compete agreements.
Attorney General Investigator Schneiderman, acknowledges in his letter to Jimmy Johns that, in many cases, an employer may have a “legitimate concern” regarding the theft of trade secrets, but it isn’t clear how that applies to people who make tuna sandwiches or deliver food by bicycle.
When developing and implementing non-competes, franchise’s non-compete policies should consider:

1. What information is trying to be protected?

2. Which employment levels or positions come into contract with trade secrets and confidential information?

3. What are the state laws in the franchise territory?

4. Are there less alternative agreements that would be more appropriate or more enforceable in situations as a substitution or in addition such as confidentiality agreements and non-solicitation agreements?

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