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Legal Issues Arise for Franchise Owners with Employee Contracts

One of the benefits of owning a business franchise is the sense of entrepreneurship in operating your own enterprise while still having a ready-made support system from the franchisor’s corporate office. Company headquarters typically provides franchisees with a whole business plan for operating the venture in line with the company’s national standards as part of a comprehensive franchise agreement. That plan may include an employee packet complete with an employment contract that franchise owners are expected to ask their workers to sign.

And that’s where one national chain is now drawing attention from Congress. Lawmakers are asking the Federal Trade Commission to investigate the Jimmy John’s sandwich store chain over the non-compete clause its employee contracts contain. The controversy could have broad implications for franchise owners across various lines of work.

Employment Contract Provisions Questioned

Non-compete agreements prevent employees from working for a competing business for a period of time after their original employment ends. In the case of Jimmy John’s, employees who sign the contract agree not to work in a competing sandwich shop for a staggering two years after leaving Jimmy John’s.

As The Huffington Post reported, “Since store workers are employed by franchisees rather than Jimmy John’s corporate, it has been left to franchisees to execute the agreements.”

What Should Franchise Owners Do?

The issue has put those franchisees in a tough spot. The law on the validity of non-compete agreements varies from state to state. Some legislatures have made them illegal except in rare circumstances on the grounds that they prevent workers from earning a living in what should be a free labor market. But in Florida, as long as the restrictions are deemed “reasonable,” such agreements are usually upheld.

Since the controversy erupted, however, The Huffington Post notes that some franchise owners have jettisoned the non-compete agreements from their hiring packets for rank-and-file workers but kept them for employees holding management positions.

That’s probably a wise move. Some states, like New York, are starting to question the reasonableness of a two-year non-compete clause for someone whose primary job responsibility is assembling a sandwich.

Non-Compete Agreements Protect Trade Secrets

The idea behind non-compete agreements has traditionally been to protect trade secrets. That’s why franchise owners are usually required to sign them as part of their franchise agreement with the national corporation. Franchise owners are privy to various business strategies and management techniques a chain uses to gain a competitive advantage over its rivals. The work restriction allows for a cooling-off period before a former franchise owner can go to work for a competing company or start another business in the same industry.

If you own and operate a franchise, it’s important for you to have confidence in the documentation that binds you to the franchisor, your employees, and any business partners you may have. It is also a good idea to speak with an attorney to review your contract and ensure it remains within the law. The legal professionals at the Law Offices of Larry E. Bray, P.A. can take a look at your employee contracts and advise you on any other business law-related matters. Reach out to us in Lake Worth, Boca Raton, or Palm Beach today.

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