A Sandwich Shop With A Noncompete Clause

This story has been making the rounds:

Noncompete agreements are typically reserved for managers or employees who could clearly exploit a business’s inside information by jumping to a competitor. But at Jimmy John’s, the agreement apparently applies to low-wage sandwich makers and delivery drivers, too.

By signing the covenant, the worker agrees not to work at one of the sandwich chain’s competitors for a period of two years following employment at Jimmy John’s. But the company’s definition of a “competitor” goes far beyond the Subways and Potbellys of the world. It encompasses any business that’s near a Jimmy John’s location and that derives a mere 10 percent of its revenue from sandwiches.

Neil Irwin comments:

What’s striking about some of these labor practices is the absence of reciprocity.

When a top executive agrees to a noncompete clause in a contract, it is typically the product of a negotiation in which there is some symmetry: The executive isn’t allowed to quit for a competitor, but he or she is guaranteed to be paid for the length of the contract even if fired.

Jimmy John’s appears to have demanded the same loyalty as the price of having a low-paid job hourly job making sandwiches, from which the worker could be fired at any time for any reason.

However, Clare O’Connor reports that Jimmy John’s noncompete clause is probably unenforceable:

“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.

Drum is puzzled:

[W]hat’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.

Matt O’Brien’s sees the noncompete clause as the kind of thing that happens “when workers have zero bargaining power”:

Now, economists used to think that the balance of power between labor and capital was pretty fixed. In other words, workers would always get a certain share of their company’s earnings, and owners would get the rest. For most of the postwar period, this certainly seemed to be the case: the split between labor and capital stayed roughly the same throughout, although it did start to slowly shift in management’s favor during the 1970s. Despite that, labor’s share of income was still close to its longer-term average in the late 1990s.

But, as you can see below, labor’s share plummeted at the turn of the century. What changed? Well, for one, globalization really got going. China joined the World Trade Organization in 2001, and the cost of its increased trade with the U.S. was an estimated 2 to 2.4 million jobs here, mostly in manufacturing. All this offshoring, of course, let U.S. multinationals pay their shareholders more at the expense of U.S. workers. And then the financial crisis all but finished labor off. That’s because the government did enough to save the economy, but not the unemployed, so companies could squeeze their workers even more while booking record earnings. Not only that, but, for reasons that aren’t entirely clear, the middle-class jobs we lost during the Great Recession have just been replaced by low-paying ones during the not-so-great recovery. That’s kept labor from catching up at all the past few years.

Capital And Labor

So the crisis has let Corporate America gobble up an even bigger slice of the income pie for itself, while the rest of America is stuck hoping for some wage crumbs.