So funny...

I'm most curious as to whether or not anyone can ask or answer the question of What Was/Is JJ's trying to Accomplish with their non-compete clauses?!

If the workers are low-wage, 'can't tie their own shoelaces' kinds of people, why do you discuss fears that they'll steal recipes or procedures and bring/sell them to competitors?! What alternative employer would hire the 'shoelace crowd' member because they had a market-influencing trade 'secret' in their pocket?


And which shoelaces-untied employee would be operating at such a level as to freaking OPEN their OWN store in competition?!

Without more WTF was JJ's trying to accomplish 'information,' this 'discussion' seems really silly.

Sure, we generally oppose government intrusion into free trade and person-to-person and person-to-employer contracts, so those are nice reasons to oppose such regulations, but I think this discussion needs to go three or four more onion-peeling levels down into WTF prompted it in the first place first!

Cheers!

At last, a voice of reason! +5

I believe these agreements are an abusive practice by companies, but I would not ban it. I *would* refuse to do business with firms that engage in it.

Stay out Government. If you don't want to sign one, don't work at Jimmy Johns.

My concern is 2B, that is if I teach them everything and they take my recipes and open a competing business in my area. That is a realistic possibility. I am sure that there are other scenarios for different businesses that are just as real. The point being is that when government gets involved, everyone is covered by the same blanket, regardless whether they are hot or cold. Then you need more regulations to address those issues, then you create loopholes and then you create an entire pseudo economy to work the loopholes. When in fact, none of the above was necessary in the first place.

So having helped run my parents' home-based, food-centric side business for 20+ years (including unique recipes), I do understand the nature of your business and your concerns.

The dangers with non-compete agreements are that the employer bears the burden of proof and they have to show several key items with respect to getting a ruling of enforcement:
1. That the non-compete does not prevent the person from being gainfully employed at a wage commensurate with their skill level.
2. That any employment entered into materially harms the previous employer either A) because the prior employee could not perform the duties of their new job _without_ relying on proprietary knowledge or trade-secrets obtained from the prior employer OR B) that they opened up their own shop in the same industry targeting the same customers with the same products (even this one is subject to some judicial discretion/interpretation) in violation of their agreement.

Given the nature of your business, these arguments are going to be a hard sell to a judge on a ruling of enforcement based on 1 (above) alone. Only 2B is an open-and-shut case, really. Hopefully you never have a previous employee as unscrupulous as to cause you concern.

Im not sure what is worse- government or business enterprises. They both try to use power to get what they want. At least with business enterprises our savior is free competition. With government there is no competition, which is what keeps it from actually serving the citizens. Both organizations try to make things good for themselves at the expense of everyone else- wherever they can.

While I can understand a business would have a non-compete clause, my problem is that there should be standards by how the non complete is defined. In JJ's case, it's if the job contains 10% sandwich making as a competitor. I would said that it should be a like for like as it could say that someone could not work in a restaurant because they serve sandwiches, or a convenience store, or whatever.

I was under the impression that the non-compete was supposed to restrict certain business related processes that were exclusive to that particular business (client lists, vendors, etc.) but saying that because my job consists of slicing a bun on it and putting meat, cheese, and condiments consists of an "exclusive process" is a bit ridiculous. Perhaps JJs has a secret way of wrapping their sandwiches, that, if it got out, would hurt their business.

Let me demonstrate with a specific example. My wife and I own a small bakery. It is a niche market – we sell a fairly small quantity (compared to the big boys) at farmers markets. The start up costs are relatively low – no retail building required, used equipment can be acquired cheaply and on a small scale one can run it from their house. The only things that give us an edge are our knowledge, skills and recipes. We employ low wage people; we teach them and they have access to all the instructions and recipes. Most of those people don’t know how to tie their shoe laces, so I am not worried about them. A few are brighter. I cannot physically prevent one from copying the instructions and the recipes, acquiring the skills and opening their own competing business. Now, I am all for competition, but not through stealing of my knowledge (including data files). On rare occasions (very rare!), when I suspect that the prospective employee may have more than a bare minimum of brains, I ask for a non compete paper. It is a waste of time for me to ask every employee to do that, but I can see how a company can, being afraid that someone may sue it for underestimating their brains! But, if a company is so anal that they would ask delivery drivers to sign such a paper, hoping that it would act as an imaginary club over their heads (imaginary, because the courts will essentially laugh at this – what are they going to do? Garnish minimum wage?), then eventually, when this become generally known, they will have a pick of only the dumbest or the most dishonest employees. Again, markets do take care of themselves!

"They should really be concentrating on satisfying customers as their first goal, not back door methods of keeping workers they trained from moving to competition to get the money that they were actually worth in the marketplace."

Precisely, and that's why I am questioning this in the first place, because a non-compete is essentially an attempt at market manipulation for labor. They are trying to circumvent the very market feedback mechanism that keeps wages competitive. +1

So in your mind, how are the non-competes for low-skill workers justified? The problem I have with them in general is that they distort the rest of the market by taking some workers out of play. I can accept them in a specific market where the goal of the non-compete is the protection of IP, but those are restricted to managers and types that are usually VERY well compensated against that eventuality. I don't see any such threat to IP from low-skill workers nor do I see the offsetting compensation for the limitations upon their futures.

"There are jobs that employ untrained people..."

ALL jobs are like that. There is _always_ an initial period of training and familiarization during which the productivity of the worker is less than their compensation in the initial stages. Businesses accept this, and the most recent business studies place turnover costs at about $10,000 per individual (obviously less for a minimum wage job - this study was for office jobs). So I'm not really buying the rest of that argument. I can also turn it around by saying - aren't you actually allowing a monopoly on labor and driving up prices by enabling businesses to engage workers with non-compete agreements? Of course you are.

"ANY TIME the government gets involved, everybody loses."

I agree, which is why I am trying to ascertain how the market can address the issue by itself. In a tight job market like the present, I'm not sure any non-legislated provision will be successful. That's why I opened this thread - to solicit options. So far, I have been drawing blanks.

"non-competes for unskilled low wage labor ... is not really enforceable"

I don't have any idea one way or another. The case law I'm familiar with is more about non-competes for managers and such. This is the first time it's been debated for low-skill workers. My question is if they aren't willing to enforce them, why make them sign in the first place?

What the heck? You mean they have a concern that an employee might quit and go to work at a McDonalds? How ridiculous..... On the other side though, do you think that an ex McDonalds employee might reveal the ingredients in the "secret sauce" to someone else?

I am always and ever against any governmental body making a law against any business activity. That being said, if a requirement for employment is signing a non-compete, so be it. If the worker objects to this, let him/her seek employment at Subway, or elsewhere.

I very much agree - this is Gult's Gulch - the land of Ayn Rand and Objectivism - which is very much not in favor of federal regulation of this nature. This is about agreements between consenting adults and if need be, a dispute can be heard in local courts - not muddled in by the federal government.
“Congress shall make no law abridging the freedom of production and trade...” - Ayn Rand /Atlas Shrugged
Trade is not limited to transactions between business - but between any two parties who agree to a set of terms for trade of their products and/or services. This is no different.

If the employee market is so small and employees have little mobility, then it could in turn become an issue for you as an employer to find employees not constrained by non-competes as well. As an intelligent employer, you should able to recognize that and reconsider pushing them as well. However, as an employer - I am primarily concerned with the functioning of my business - if I cannot have employees with sign non-competes for positions where it matters - then I take the risk of being driven out of business. How does that help the employee base?

First issue: Will government involvement help or hurt? I think that the answer to that question should be self-evident, especially when you have Al Frankel in the mix.
Second question: Does non-compete makes sense for low wage employees? In my opinion, yes. There are jobs that employ untrained people (in that field, at least) and teach them proprietary skills. The eventual output of that job may be worth more than the minimum wage, but while a person is learning, their output is often much less than they are being paid. A business will be faced with only hiring skilled workers at much higher rate (in order to still have the non-competes), thus eliminating the training opportunities for the new cadres and eventually leading to monopolies, or not hiring at all, thus limiting expansion, again leading to monopolies. Bottom line – ANY TIME the government gets involved, everybody loses. Besides, non-competes for unskilled low wage labor such as delivery drivers is not really enforceable anyway – the prosecution costs will be much higher than anything that the company will ever collect; who would be such an idiot as to do that?

I oppose this legislations for a few reasons.
One, it is a contract between consenting parties. Whether they are low wage or high wage – it’s an agreement between the parties and the federal government doesn’t really have any business meddling in this. This would be an issue for local courts to deal with – assuming the previous employer bothers to go that route in the first place.
Two, whether minimum wage or not – they can still learn trade secrets. This case said JJ only had SOME of their employees sign non-competes. One would think they are having employees with sensitive information to sign these verses everyone (like sandwich artists). Such as to delivery drivers who know where larger client deliveries may being made, or what suppliers they may be getting products from. Trust me that matters. I have know people to leave an employer and go to another and then try to use their knowledge to bring part of the previous employers customer base with them – or give their new employer information about where to get supplies cheaper – or better supplies because they know the sources. This legislation says the people making less than $15 per hour would also qualify. I have had access to a LOT of very sensitive information of many companies while making less than this limit. Pay is not a determining factor as to whether or not they could take damaging information to a competitor.
Three, judges in local courts, can hear the details in a case to decide if the non-compete is overly restrictive - given the particular case’s circumstances. Let it be a local issue where it belongs, where agreements between consenting, contract signing adults may be heard. Why would JJ bother to take a previous employee to court unless they were doing something with their new employer to cause them financial harm? They would have to be awfully vindictive to bother going after them otherwise – and even if so – they did sign a contract.
Ayn Rand and Objectivism is not in support of big government regulation – but is in favor of courts hearing cases involving disputes. The federal level is there to defend rights, and whether to uphold a contract signed between adult consenting parties is not a rights issue.

This isnt something that the government should get involved in at all. Employees can simply not go work for Jimmy Johns if their conditions are too onerous. I can see why the company would want to protect itself in all ways possible, but they might not be able to staff their stores using non competes. They should really be concentrating on satisfying customers as their first goal, not back door methods of keeping workers they trained from moving to competition to get the money that they were actually worth in the marketplace.

Just make them business owners... employers have no minimum wage.

JJ is out of line. i am sure some will sign but only to get a job. and if in 6 months they go to wendys is JJ going to go after them based on the possibility that this person told wendys management what he saw. will it be worth JJ's money as well as time. they JJ are a joke.

Courts have already ruled that many non-competes are en-enforceable because they damage the ability of that employee to make a living, but the cases I'm familiar with were ones where the business attempting to enforce the non-compete were concerned about trade secrets and other IP. I don't know that a minimum-wage company has ever had their non-compete challenged in court, so I am not aware of their arguments justifying the enforcement of a non-compete.

"I'm not arguing the merits of a non-compete"

Oh, I know you're not. ;) The question I raise, however, is that a non-compete tampers with a third-party, and therefore becomes an external matter. I'm just evaluating the various external feedback mechanisms available to counteract such bad behavior. So far the only ones I can think of are litigation (contract dispute) or legislation (declaration that such contracts are inherently unenforceable such as this legislation).

I'm not seeing how the market-based approach you are advocating would actually act as an effective check. Here's why:

First of all, the very employee base we're talking about aren't employable at that many jobs due to a lack of skills. They also have limited means as a result, meaning that their mobility is _very_ low. Their ability to pick and choose which businesses they apply for a position at is limited.

Second, your model assumes that there are a plethora of competitors for those workers. In a good economy, that may be the case. In an economy like what we have right now, I'd argue it's not. When that meager share of positions lacking a non-compete are gone, workers are left with few options.

Third, if they leave the employ of one of those businesses constrained by a non-compete, their free movement in the market is hampered.

Last, the labor supply also is decreased for competitors of those businesses every time an employee is hired. Every person that leaves the employ of a business constrained by a non-compete actually is taking _two_ people away from competing businesses: the one who left and the new entry who takes their place.

Again, in a robust market, with high demand for low-skill workers, that mechanism _might_ be able to somewhat check the non-compete, but in a low-demand market, I see no effective market-based solution.

Very interesting. Is there data that says the non-compete is hurting Jimmy John's, the employees, and other sandwich shops?

That's precisely why I raise the question, however. The very employees we are talking about are the _least_ mobile and _most_ subject to market conditions. And we have to remember that no company's open labor pool is infinite: sooner or later the jobs in other companies (without non-competes) are going to fill up and the remaining laborers will be left with few options.

My concerns expand, however, because of the eventuality of people being hired subject to non-competes. When those people leave that employer, the entire labor force for that industry effectively shrinks by the number of people with enforceable non-compete agreements. So other companies are effectively being choked to some degree of a ready supply of cheap labor and most especially the ones most trained to capitalize on that kind of job due to prior experience. The Blimpies or Subway down the street can't hire the most qualified, productive candidate - the one that just left Jimmy Johns'!

I agree with you that it doesn't make sense for Jimmy Johns to attempt to enforce such non-competes, I'm just trying to figure out _if_ there is a market-based force that counteracts such bad behavior or if there was no resort but the heavy hand of government. I'm racking my brain and just not coming up with the options.

Respectfully Bnlarman, I'm not arguing the merits of a non-compete, but rather the right of the legislature to approve or disapprove the internal workings of the business. If shop A has the non-compete ans shop B does not (assuming comparable wages, and working conditions), which shop do you think will have the better choice of employees? Eventually, B will force A to comply or get an ever decreasing share of the pie. Economics is a powerful force for good.