On March 12, 2019, Dunkin’ Donuts, Arby’s, Five Guys Burgers and Fries, and Little Caesars agreed to stop including “no-poach” clauses in their franchise agreements and no longer to enforce such clauses in existing agreements. A no-poach clause is an agreement between employers not to hire each other’s employees. The franchisors agreed to end this practice following an investigation by a coalition of attorneys general from 14 states into the use of no-poach clauses in fast food franchise agreements.[1] In a press release announcing the settlement, Maryland Attorney General Brian Frosh explained his concern “that no-poach provisions make it difficult for workers to improve their earning potential by moving from one job to another or seeking a higher-paying job at another franchise location, and that many workers are unaware they are subject to these no-poach provisions.”
In addition to the ongoing investigation by the attorneys general, there are also pending several class actions targeting no-poach agreements, including in the United States District Court for the Eastern District of Washington. Interestingly, in some of those actions, the United States Department of Justice (“DOJ”) weighed in on the plaintiffs’ attempted application of federal antitrust law to franchise agreements. In a March 8, 2019 Statement of Interest, the DOJ forcefully argued against the class action plaintiffs’ novel legal theory that no-poach clauses in franchise agreements are per se unlawful under federal antitrust law, thereby allowing courts to find liability in the absence of sophisticated proof of market impact. This filing indicates that while the DOJ remains committed to its 2016 Guidance announcing an increased role for antitrust enforcement in combating anticompetitive employment practices, it is not interested in radically changing basic principles of antitrust law.
In light of these developments, franchisors should review their franchise agreements to ensure they comply with applicable laws, paying particular attention to any no-poaching language in those agreements. Other employers who may have entered into formal or informal no-poach agreements should evaluate the necessity of such agreements in view of the increased scrutiny they are receiving from the government and individual plaintiffs.
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[1] The coalition includes law enforcement officials from Maryland, California, the District of Columbia, Iowa, Illinois, Massachusetts, Minnesota, North Carolina, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, and Vermont.