Jimmy John's settles Illinois lawsuit over non-compete agreements

(Reuters) - Fast-food franchise Jimmy John’s has agreed not to enforce a prohibition on workers at its sandwich shops from taking jobs with competitors in order to settle a lawsuit claiming the agreements were illegal, the attorney general of Illinois said on Wednesday.

The Illinois-based company, which operates nearly 300 stores in the state and 2,000 in the United States, also will provide $100,000 for programs to raise public awareness regarding so-called non-compete agreements, Attorney General Lisa Madigan’s office said.

“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 statement.

Jimmy John’s in a statement said it took steps to rescind non-compete agreements even before Madigan’s office first contacted the company last year. The attorney general had no evidence that Jimmy John’s ever enforced a non-compete agreement against an hourly worker, the company said.

Madigan, who sued the company in June, said Jimmy John’s would notify current and former employees in Illinois that the agreements they signed were not enforceable and would ask franchisees to rescind the agreements.

The settlement comes after Jimmy John’s entered into a similar agreement with New York Attorney General Eric Schneiderman in June.

Requiring white-collar workers to sign non-compete agreements is common and frequent legal battles over the validity of such agreements focus on the length of time they are in effect and their geographical limits. But the pacts are almost unheard of in fast-food and other service industries.

The Obama administration in October called on U.S. states to ban most non-compete agreements, saying it would lead to a more competitive labor market and faster wage growth.

The Jimmy John’s agreement prohibited employees during their employment and for two years afterward from working at any other business that sells “submarine, hero-type, deli-style, pita, and/or wrapped or rolled sandwiches” within 2 miles of any Jimmy John’s shop in the United States, according to Madigan’s lawsuit. An agreement in effect from 2007 to 2012 extended that to 3 miles.

In the lawsuit filed in Cook County Circuit Court in Chicago, Madigan’s office said non-compete agreements lock low-wage workers into their jobs, giving companies little reason to increase wages or benefits.

The attorney general said Jimmy John’s had “no legitimate business interest” to warrant the non-compete agreements on shop employees and assistant managers.

The case is the People v. Jimmy John’s Franchise LLC, Circuit Court of Cook County, Illinois, No. 2016-CH-07746.

Reporting by Daniel Wiessner in Albany, New York; Editing by Alexia Garamfalvi and Bill Trott