Workers Held Hostage by Employee Contracts: An Issue of Standing?

Author: Brynn Stylinski, Associate Member University of Cincinnati Law Review

On April 8, 2015, the U.S. District Court for the Northern District of Illinois dismissed a class action suit against the restaurant chain Jimmy John’s for lack of standing.[1] The complaint involved a requirement that all employees sign an unduly-restrictive Confidentiality and Non-Competition Agreements.[2] The plaintiffs, current and former Jimmy John’s employees, sought declaratory and injunctive relief from the terms of the restrictive agreements.[3] However, the court held that the plaintiffs lacked standing to bring suit based on an apparent lack of injury and deficiencies in the plaintiffs’ pleading.[4] This article will discuss the background and the circumstances of the suit, the standing requirement standard, the court’s decision, and how the court misapplied the law.

Brunner Background

Jimmy John’s and its franchisees require that every new employee sign a “Confidentiality and Non-Competition Agreement” (Non-Compete Agreement).  The agreement forbids any disclosure of information about the company.[5]  It also forbids employees from working for any food service venue that derives “more than ten percent (10%) of its revenue from selling submarine, hero-type, deli-style, pita and/or wrapped or rolled sandwiches” within three miles of any Jimmy John’s location.[6]  The Non-Compete Agreement remains in place for two years after the employee leaves the company.[7]

Former employees brought suit against Jimmy John’s, its founder, and its franchisees.  The class action sought declaratory and injunctive relief against the terms of the Non-Compete Agreement.[8]  The two named plaintiffs, Brunner and Turowski, feared that they were subject to suit under the Non-Compete Agreement, so they preemptively filed a suit seeking declaratory and injunctive relief.[9]

Brunner currently works as an Assistant Store Manager (ASM) for Jimmy John’s.  Brunner believed that she breached the Non-Compete Agreement by revealing confidential information to potential future employers that are competing food service companies.[10]  Turowski, a former driver and ASM of Jimmy John’s, also feared legal recourse when she began working at a barbecue restaurant that is within three miles of her former employer, during the prohibited time period.[11]  Jimmy John’s had never attempted enforcement of the agreement against either plaintiff.[12]  The court looked to this fact when it decided the claim based on standing.

The Standing Analysis

The right to sue for declaratory judgment arises under 28 U.S.C. §2201(a), the Declaratory Judgment Act.  This act provides that any court may declare which rights and legal relations are held by an interested party so long as an actual controversy exists and an appropriate pleading is brought.[13]  In order to bring a claim for declaratory relief, the plaintiff must demonstrate standing.[14]

Standing is established by the presence of three factors: (1) the plaintiff “personally has suffered some actual or threatened injury” as a result of the defendant’s conduct, (2) the injury can be traced to the challenged conduct, and (3) the injury is likely to be redressed by the court’s favorable decision.[15]  The plaintiff must demonstrate all factors to bring suit.

The Brunner Court’s Analysis

To address whether the plaintiffs had standing in Brunner, the court looked to the Seventh Circuit’s earlier decision in International Harvester Co. v. Deere & Co.[16]  In International Harvester, the court addressed standing for a declaratory judgment in the context of a patent infringement claim.  It established that a plaintiff must first show a reasonable apprehension that she would face a lawsuit and then show that the plaintiff engaged in conduct or intended to engage in conduct that would lead the defendant to sue.[17]  The Brunner court found that the plaintiffs failed to prove either of these elements.[18]

Brunner claimed a reasonable apprehension based on her limited understanding of the Non-Compete Agreement.  She feared that her communications with potential employers resulted in a breach of the agreement. Brunner argued that her fear of breach and her knowledge that the company’s owner sued his own cousin to enforce similar agreements established a reasonable apprehension.[19]  However, the court rejected this claim on the basis that Brunner failed to: (1) present the contents of her disclosures to potential employers; and (2) state whether a clarification of the parameters might eliminate her fear of litigation.[20]  Because her complaint was filled with uncertainties over her potential employer’s status as a competitor, the apprehension – which has kept her from accepting employment elsewhere – was not reasonable.[21] Since her apprehension was unreasonable, the injury was not sufficient to establish standing.[22]

The court reached a similar conclusion regarding Turowski.  Because Turowski could not say whether her subsequent employer derived more than ten percent of its revenue from sandwiches, it was unclear whether she had violated the Non-Compete Agreement.[23]  Thus her apprehension – not demonstrated prior to accepting her employment there – was not reasonable and  failed to show sufficient injury.[24]

Furthermore, the court found that even if the plaintiffs proved a reasonable apprehension, they failed to satisfy the second element.  The plaintiffs’ actions were unlikely to result in a lawsuit because Jimmy John’s and its franchises had submitted affidavits promising not to enforce the Non-Compete Agreement against the plaintiffs.[25]  The court found that because the plaintiffs failed to show any history of enforcement against them, it was unlikely that Jimmy John’s would attempt to enforce the agreement in the future.  Therefore, even if the plaintiffs had standing when the suit was first filed, their case would be moot.[26]

Brunner’s Misapplication of the Law

When the court applied the reasoning of International Harvester it failed to consider the more recent analysis established by the Seventh Circuit in Vickers v. Henry County Savings & Loan Ass’n.[27] The Brunner court also ignored the Supreme Court’s use of open and inclusive language in describing the requirements for standing in a declaratory judgment case for patent infringement.[28]  Despite quoting other language from these cases, the court failed to give them the appropriate amount of weight.

In Vickers, the court found that standing may be established through the presence of “actual or threatened injury” resulting from the defendant’s conduct so long as the injury can be traced to the challenged conduct and is likely to be redressed by the court’s favorable decision.[29]  The Supreme Court emphasized that the purpose of the Declaratory Judgment Act is to provide relief to those who would otherwise be subject to a “Damoclean threat with a sheathed sword” in which they are under a constant threat of suit, but may not act because one has not been filed.[30]  It found that “the [plaintiff’s] desire to avoid the threat of a ‘scarecrow’ patent” could be sufficient to establish standing, through the fear of growing liability.[31]  The Brunner court focused on the presence of actual injury, but failed to consider the possibility that standing may be justified by the threat of injury.

In Brunner, the plaintiffs were constantly under the threat of potential enforcement of the Non-Compete Agreements.  They were aware of another instance where the agreement was enforced, and the agreement itself contains provisions requiring the employees to pay the company’s attorney’s fees in the event of enforcement litigation.[32]  Litigation for enforcement was anticipated by the agreement itself, making it exactly the type of Damoclean threat contemplated by the Supreme Court. The plaintiffs’ claims were completely reasonable in this context.

The threatened injury is directly related to the conduct of the plaintiffs.  Working for a competitor within the prohibited proximity and revealing confidential information to a competitor while attempting to gain employment are the exact types of conduct prohibited by the contract.  Despite the Brunner court’s conclusions, it is not required that the plaintiffs actually be deterred from action by the threat of injury, though this deterrence might support their claims.[33]  This threatened injury would be resolved by a favorable decision from the court, fulfilling the final element for standing.  A ruling that the Non-Compete Agreements were invalid would eliminate the plaintiffs’ vulnerability to suit and the threat of enforcement.  The plaintiffs thus have standing under the more recent and controlling precedent of the Supreme Court’s decision in Cardinal Chemicals and the Seventh Circuit’s decision in Vickers.

In addition to standing, the plaintiffs’ case should not be considered moot as the Brunner court found.  The court in Brunner stated that the case would be moot based on the affidavit from the defendants promising not to bring suit, and the fact that the defendants had not previously attempted enforcement.[34]  The court acknowledged that the mere voluntary cessation of wrongful activity does not render a case moot, but it found that the failure to enforce prior to this point indicated that the defendants were unlikely to enforce it in the future.[35]  However, the Supreme Court determined in Cardinal Chemicals that a finding that the plaintiffs would not be liable did not moot a declaratory judgment of invalidity.[36]  Thus, in a situation where there is no possibility that the defendant will enforce the invalid agreement the case is not moot, because it still affects future employees.[37]  In light of Cardinal Chemicals, the case was not mooted by the fact that the defendants were not likely to enforce the agreement for these particular plaintiffs.

Conclusion and Potential Ramifications

The court’s decision to dismiss this case for a lack of standing means that Jimmy John’s employees will continue to be subject to an extremely limiting non-compete agreement.  The court’s narrow interpretation of standing means that it will be difficult for employees to bring a class action suit in the future.  Class actions are the vehicle for those who cannot afford to bring suit alone (like fast food employees), to raise sufficient funds to bring their cases forward.  The direct injury that the court seems to require will make it difficult for workers to find others with similar concurrent injuries because only a fraction of affected workers will qualify. This means that the non-competition agreement is likely to remain in place for some time, despite its unreasonable restrictions.

Should other courts follow the Northern District of Illinois’s example, it will become extremely difficult to challenge a non-compete agreement unless the plaintiff has been directly threatened with enforcement.  It will become difficult for a class of workers to challenge an unfair employment agreement without having legal action brought against them first.  The purpose of declaratory action is to allow plaintiffs the opportunity to challenge an unfair agreement before being held to its terms.  The decision in Brunner undercuts this purpose and will likely subject workers to the very consequences that declaratory judgment is meant to avoid.

[1] Brunner v. Liautaud, No. 14-C-5509, 2015 WL 1598106 (N.D. Ill. Apr. 8, 2015).

[2] Id.

[3] Id.

[4] Id. at *1, 10-11.

[5] Id. at *2.

[6] Exhibit A at 3, Brunner, 2015 WL 1598106 (1:14-cv-05509), available at http://big.assets.huffingtonpost.com/FACExhibitA.pdf.

[7] Brunner, 2015 WL 1598106, at *2.

[8] Id.

[9] Id.

[10] Id.

[11] Id.

[12] Id.

[13] 28 U.S.C. §2201(a) (West 2010).

[14] U.S. Const. art. III, § 2, cl. 1.

[15] Vickers v. Henry County Savings & Loan Ass’n, 827 F.2d 228, 230-31 (7th Cir. 1987) (citing Valley Forge Christian College v. Americans United for Separation of Church and State, Inc., 454 U.S. 464, 472 (1982)).

[16] Brunner, 2015 WL 1598106, at *8-9 (citing International Harvester Co. v. Deere & Co., 623 F.2d 1207 (7th Cir. 1980)).

[17] International Harvester, 623 F2d. at 1210.

[18] Brunner, 2015 WL 1598106, at *9.

[19] Id.

[20] Id.

[21] Id.

[22] Id.

[23] Id.

[24] Id. at *9-10.

[25] Brunner, 2015 WL 1598106 at *10.

[26] Id.

[27] Vickers v. Henry County Savings & Loan Ass’n, 827 F.2d 228, 230-31 (7th Cir. 1987).

[28] Cardinal Chemical Co. v. Morton Intern, Inc., 508 U.S. 83 (1993).

[29] Vickers, 827 F.2d at 230-31 (emphasis added, internal citations omitted).

[30] Cardinal Chemical, 508 U.S. at 95-6.

[31] Id. at 96.

[32] Brunner, 2015 WL 1598106 at *9 (N.D. Ill. Apr. 8, 2015); Exhibit A at 3, Brunner, 2015 WL 1598106 (1:14-cv-05509), available at http://big.assets.huffingtonpost.com/FACExhibitA.pdf.

[33] Neither Vickers nor Cardinal Chemicals refers to a deterrence requirement.

[34] Brunner, 2015 WL 1598106 at *10.

[35] Id.

[36] Cardinal Chemical, 508 U.S. at 91, 98.

[37] See Id. at 100.

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