331 F. Supp. 3d 786
S.D. Ill.2018Background
- Jimmy John’s is a national sandwich chain with ~2,700 locations; ~98% are franchised and operate as independent entities under ten-year franchise agreements.
- Franchise agreements contain a "no-hire" provision: franchisees may not solicit or recruit any person employed by another Jimmy John’s franchised restaurant within the prior 12 months; violations can lead to termination and heavy liquidated damages.
- Franchise agreements designate other franchisees as third-party beneficiaries with an independent right to enforce the no-hire provision against one another; written permission is required before recruiting another franchisee’s current or recent employee.
- To implement and enforce the no-hire regime, franchisees require employees to sign company-designed non-compete covenants restricting sandwich-shop employment for two years post-employment and imposing fee-shifting for enforcement.
- Plaintiff Butler, a former Jimmy John’s employee, alleges reduced hours/wages and loss of mobility caused by these provisions and sues on behalf of a nationwide class under Section 1 of the Sherman Act, the Illinois Antitrust Act, and the Illinois Consumer Fraud Act.
- Defendants moved to dismiss for lack of standing and failure to state a claim; the court granted dismissal of the state-law claims without prejudice but allowed the Sherman Act claim to proceed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Article III and antitrust standing | Butler: alleges concrete financial injury (reduced hours/wages, lost mobility) traceable to no-hire/non-compete scheme | Jimmy John’s: injuries are speculative or from scheduling, not the no-hire provision | Court: Butler has Article III and antitrust standing at pleading stage; allegations of wage/mobility harm are sufficient |
| Nature of the agreement (horizontal vs. vertical) | Butler: HQ orchestrated a horizontal agreement among independent franchisee competitors (a hub-and-spoke) that restricts hiring and suppresses wages | Jimmy John’s: agreements are vertical franchise contracts between corporate and franchisees; no horizontal agreement among franchisees | Court: Butler plausibly alleged a hub-and-spoke horizontal agreement and may proceed; resolution depends on factual development |
| Standard of review under Sherman Act (per se, quick-look, or rule of reason) | Butler: per se or quick-look applies because the alleged horizontal boycott/wage-fixing is inherently anticompetitive | Jimmy John’s: intrabrand restraint/vertical nature warrants rule of reason and market-power proof | Court: Cannot decide now; quick-look or per se may apply if franchisees are independent enough, otherwise rule of reason could apply after factual record develops |
| State-law claims viability (Illinois Antitrust Act and ICFA) | Butler: state statutes offer relief parallel to federal claims | Jimmy John’s: Illinois Antitrust Act excludes labor markets; ICFA not available to suppliers of labor and cannot be used to evade antitrust limitations | Court: Dismissed both state-law claims without prejudice; plaintiff given 30 days to amend if possible |
Key Cases Cited
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (U.S. 1992) (Article III standing requirements)
- Toys "R" Us, Inc. v. F.T.C., 221 F.3d 928 (7th Cir. 2000) (hub-and-spoke vertical agreements can produce a horizontal conspiracy and per se liability)
- California Dental Ass'n v. F.T.C., 526 U.S. 756 (U.S. 1999) (quick-look standard where anticompetitive effect is obvious despite nontraditional restraints)
- Agnew v. National Collegiate Athletic Ass'n, 683 F.3d 328 (7th Cir. 2012) (discussion of per se, quick-look, and rule-of-reason frameworks)
- United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (U.S. 1940) (price-fixing is per se illegal)
- F.T.C. v. Superior Court Trial Lawyers Ass'n, 493 U.S. 411 (U.S. 1990) (horizontal boycott aimed at influencing pay is per se illegal)