McDonald's Noncompete AgreementMcDonald’s recently announced it terminated its chief executive, Steve Easterbrook, for having a consensual relationship with an employee. This termination presents a buffet of employment law and HR issues upon which one could devour. However, I want to focus on the non-compete restriction that Mr. Easterbrook ultimately agreed to upon ending his employment.

The Background for the Termination

For background purposes, Mr. Easterbrook was terminated after having a relationship with an employee. This relationship violated McDonald’s company policy, which prohibits employees with “a direct or indirect reporting relationship” from “dating or having a sexual relationship.” Such policies, sometimes called nonfraternization policies, have become standard for employers.

There are many perspectives on this firing. The New York Times, for example, reports that Mr. Easterbrook was not the first (nor will he be the last) executive to be removed for violating this sort of policy. And, Forbes provides three good reasons for why this termination made sense. See “Fair Or Foul? McDonald’s CEO Fired For Love.” And NPR analyzed the significant pay gap between compensation at the top and the bottom of the corporate ladder.

McDonald’s Non-compete Severance Agreement

But I found the non-compete restriction interesting and relevant to issues my clients regularly address. Specifically, how broadly can a non-compete restriction be drafted before it becomes unenforceable?

Here, McDonald’s post-employment restriction puts Mr. Easterbrook on the employment “side-lines” for two years. He is prohibited from working anywhere in the world for a “Competitive Company.” So what is a “Competitive Company?” The obvious suspects are listed in the agreement, such as Burger King, Jack-in-the-Box, Wendy’s, Arby’s, and Taco Bell.

But McDonald’s also expanded the definition of a “Competitive Company” to nonobvious fast-food restaurants like Domino’s Pizza, Papa John’s, Pizza Hut, Jamba Juice, Long John Silver’s, and Panera. Here is the full non-compete restriction:

Competitive Companies” shall mean any company in the restaurant industry (whether informal eating-out or ready-to-eat) that competes with the business of McDonald’s, including any business in which McDonald’s engaged during the term of your employment and any business that McDonald’s was actively considering conducting as of your Termination Date. Examples of Competitive Companies include, but are not limited to: Arby’s, BoJangle’s, Burger King/Hungry Jacks, Caffè Nero, Checker’s, Chick-fil-A, Chipotle, Costa, Culver’s, Denny’s, Domino’s Pizza, Dunkin’ Brands, Five Guys, Greggs, Hardee’s, In-N-Out Burger, Jack-in-the-Box, Jamba Juice, Long John Silver’s Quick Service Restaurant Holdings (and all of its brands and subsidiaries), Panera Bread, Papa John’s, Popeye’s Chicken, Potbelly, Q-doba, Quiznos, Seven-Eleven, Sonic, Starbucks, Subway, Tim Horton’s, WaWa, Wendy’s, YUM Brands, Inc. (including, but not limited to, Taco Bell, Pizza Hut, Kentucky Fried Chicken and all of YUM Brands, Inc.’s subsidiaries) and their respective organizations, partnerships, ventures, sister companies, franchisees, affiliates or any organization in which they have an interest and that are involved in the restaurant industry (whether informal eating-out or ready-to-eat) anywhere in the world, or that otherwise compete with McDonald’s. You agree to consult with McDonald’s General Counsel, Jerry Krulewitch, or his successor, for clarification as to whether or not McDonald’s views a prospective employer, consulting client or other business relationship you may have or have had in the restaurant industry (whether informal eating-out or ready-to-eat) not listed above as a Competitive Company.

So is this sort of post-employment restriction enforceable? For Mr. Easterbrook, probably. He was the CEO of the company, and he agreed to receive substantial compensation in exchange for signing the agreement. CBS reports his severance payout may be worth $70 million and could increase if McDonald’s meets certain financial targets over the next three years.

But would a similar restriction be enforceable for your average manager or employee getting little to no severance pay? That is a different story.  An employer would probably have difficulty in convincing a judge such a broad restriction is necessary to protect a reasonable competitive interest. And such an interest is the touchstone for non-compete enforceability.

Use this link to contact Michigan attorney Jason Shinn, if you have questions about this article or want to discuss the enforceability of your non-compete agreement. Since 2001 he has represented companies and individuals in drafting, negotiating, and litigating non-compete disputes.