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Jimmy John’s sued over franchise ‘no poaching’ agreements

By Pamela Wolf, J.D.

After facing problems in 2016 in New York and Illinois over the noncompete agreements it was foisting on low-wage workers, gourmet sandwich franchise Jimmy John’s is now facing a class action lawsuit over the employee nonsolicitation and no-hire agreements between and among Jimmy John’s restaurant franchisees that the franchisor is purportedly requiring. The sandwich store chain has more than 2,700 locations in more than 40 states plus the District of Columbia, which means the class of affected workers is likely in the thousands. About 98 percent of Jimmy John’s restaurants are independently owned and operated as separate and distinct entities from the corporate entity, with the remaining restaurants owned and operated by Jimmy John’s itself.

Worker noncompete agreements. In 2016, the corporate entity agreed to stop including sample noncompete agreements in the hiring packets that it sends to franchisees after New York Attorney General Eric Schneiderman challenged the practice of making low-wage workers sign the agreements. Jimmy John’s also agreed to inform franchisees that the New York Attorney General had concluded that the noncompete agreements were unlawful and should be voided. Illinois Attorney General Lisa Madigan also took action over the same noncompete agreements.

No poaching agreements. Fast forward to 2018, and Jimmy John’s is now facing a lawsuit filed by a former employee on behalf of a class of similarly situated current and former employees over what is commonly called the franchisor’s “no poaching” agreements. The plaintiff was employed part-time at Jimmy John’s, working both as a delivery driver, at a rate of $5.50 per hour plus 50 cents per mile, and as an in-store employee, at the Illinois minimum wage rate of $8.25 an hour. In January 2017, he quit this job after his supervising manager had cut his hours to about four a week. The plaintiff alleges that he “suffered reduced wages and inhibited employment opportunities due to the Jimmy John’s no-hire agreement.”

Brought under Section 1 of the Sherman Act and Illinois law, the complaint challenges an agreement pursuant to which franchisees have agreed not to solicit, recruit, or hire each other’s employees. The complaint alleges that Jimmy John’s, at its principal place of business located in Illinois, “orchestrated, designed, monitored, and enforced this anti-competitive contract, combination, or conspiracy” at least in part, “through explicit contractual agreements (and remedies for violation) contained in standard Jimmy John’s franchise documents and in forms used by franchisees.” The complaint calls the challenged practice a reflection of a “naked restraint of competition and a per se violation of the antitrust laws.”

According to the complaint, “franchisees who have executed franchise agreements from 2016 to the present all have agreed that they will not: ‘solicit or initiate recruitment of any person then employed, or who was employed within the preceding twelve (12) months, by [Jimmy John’s], any of [Jimmy John’s] affiliates, or another Jimmy John’s Restaurant franchisee.’”

Violations of the no-hire agreements. Under the current form of franchise agreement, franchisees agree that violation of the employee solicitation and recruitment restrictions is grounds for Jimmy John’s to terminate the franchise, the complaint alleges. If Jimmy John’s terminates a franchise, franchisees also agree that the corporate entity “may require the franchisee to pay, within 15 days, ‘liquidated damages’ in the form of up to three years’ worth of restaurant royalties.”

As to the hiring of anyone employed in a management position at a Jimmy John’s restaurant following solicitation or recruitment in violation of the agreement, the franchisees “also agree to pay to Jimmy John’s, its affiliates, or any other Jimmy John’s Restaurant franchisee, ‘liquidated damages’ in the amount of $50,000, along with any attorneys’ fees and costs incurred in a successful legal action to enforce the provision.” The liquidated damages of $50,000 is more than 140 percent of the 2017 initial franchise fee, according to the complaint.