What’s the Point of an Unenforceable Noncompete Agreement?


We all learned recently that sandwich shop Jimmy John’s forces its workers to sign a noncompete agreement before they’re hired. This has prompted a lengthy round of blogospheric mockery, and rightfully so. But here’s the most interesting question about this whole affair: What’s the point?

Laws vary from state to state, but generally speaking a noncompete agreement can’t be required just for the hell of it. It has to protect trade secrets or critical business interests. The former makes them common in the software business, and the latter makes them common in businesses where clients become attached to specific employees (doctors, lawyers, agents) who are likely to take them with them if they move to a new practice. But none of this seems to apply to a sandwich shop. Clare O’Connor of Forbes asked an attorney about this:

“There’s never a guarantee, but I can’t see any court in the world upholding this,” said Sherrie Voyles, a partner at Chicago firm Jacobs, Burns, Orlove & Hernandez. “Every state law is different on this issue, but the general idea is that it’d only be upheld if it’s reasonable. The test would be, is there a near-permanent customer base? No. Customers at Jimmy John’s are probably also customers at Subway.”

Voyles said she can’t imagine any Jimmy John’s outlet actually enforcing this non-compete clause (indeed, there’s no evidence any have tried), but can’t see any reason it’d hold up in court. “It’s not the kind of interest protected by law,” she said.

The Wall Street Journal nonetheless reports that litigation over noncompete clauses has risen over the past few years, but this appears to be mostly in places like the software industry, where trade secrets are important. Not so much in the fast food business.

So again: what’s the point? I’ve not heard of a single case of Jimmy John’s actually taking someone to court over this, and it seems vanishingly unlikely that they would. That seems to leave a couple of options. First, it’s just boilerplate language they don’t really care about but left in just in case. The second is that they find it useful as a coercive threat. Sure, they’ll never bother going to court, but maybe their workers don’t know that—which means they’re less likely to move across the street to take a higher-paying job. In other words, it’s a handy tool for keeping workers scared and wages low.

So it’s either stupid or scummy. Take your pick.

UPDATE: Stephen Bainbridge, who actually knows what he’s talking about, agrees that a noncompete clause like this is pretty much legally useless. But he quotes Cynthia Estlund explaining why it might have value anyway:

Even a manifestly invalid non-compete may have in terrorem value against an employee without counsel.

In terrorem? Lawyers actually use this phrase? I guess it gets the point across, doesn’t it?

DOES IT FEEL LIKE POLITICS IS AT A BREAKING POINT?

Headshot of Editor in Chief of Mother Jones, Clara Jeffery

It sure feels that way to me, and here at Mother Jones, we’ve been thinking a lot about what journalism needs to do differently, and how we can have the biggest impact.

We kept coming back to one word: corruption. Democracy and the rule of law being undermined by those with wealth and power for their own gain. So we're launching an ambitious Mother Jones Corruption Project to do deep, time-intensive reporting on systemic corruption, and asking the MoJo community to help crowdfund it.

We aim to hire, build a team, and give them the time and space needed to understand how we got here and how we might get out. We want to dig into the forces and decisions that have allowed massive conflicts of interest, influence peddling, and win-at-all-costs politics to flourish.

It's unlike anything we've done, and we have seed funding to get started, but we're looking to raise $500,000 from readers by July when we'll be making key budgeting decisions—and the more resources we have by then, the deeper we can dig. If our plan sounds good to you, please help kickstart it with a tax-deductible donation today.

Thanks for reading—whether or not you can pitch in today, or ever, I'm glad you're with us.

Signed by Clara Jeffery

Clara Jeffery, Editor-in-Chief

We Recommend

Latest

Sign up for our newsletters

Subscribe and we'll send Mother Jones straight to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate

Share your feedback: We’re planning to launch a new version of the comments section. Help us test it.