Jimmy John’s No-Poach Policy Leaves Bad Taste

Sylas Butler was an employee for a Jimmy John’s sandwiches franchise in Illinois.

After Butler’s hours were reduced, he attempted to transfer to another Jimmy John’s franchise. He discovered he could not transfer because the franchises have contracts with Jimmy John’s corporate that contain “no poach agreements,” — agreements that prohibit franchisees from hiring each other’s employees.

Butler brought a class-action lawsuit on behalf of current and former Jimmy John’s employees, alleging the sandwich company violated the Sherman Antitrust Act, and committed unfair and deceptive business practices under state law. The United States District Court for the Southern District of Illinois held that Butler stated a valid claim under the Sherman Act and state law.

The court rejected Jimmy John’s argument that the no-poach agreements were merely “vertical” restraints on trade between Jimmy John’s corporate and franchisees, and not “horizontal” restraints upon trade between competitors, which are typically illegal.

The effect of the no-poach agreements was horizontal, as under the contract, the franchisees had the ability to enforce the no-poach agreements against each other as third-party beneficiaries. Butler v. Jimmy John’s Franchise, LLC, 331 F. Supp. 3d 786 (S.D. Ill. 2018).

IMPACT: Courts are increasingly skeptical of no-poach agreements that restrict the ability of employees to seek gainful employment.