October 19, 2021

Volume XI, Number 292


October 18, 2021

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Franchisors Face Class Action Lawsuits & Government Enforcement over “No-Poach” Agreements

Eight national restaurant chains have agreed to drop provisions in their franchise agreements that prohibit franchisees from hiring fellow franchisees’ employees. The removal of the “no-poach” hiring stipulation will be effective at all of their locations nationwide.

This move comes at the heels of announcements from Attorneys General from 10 states and the District of Columbia to investigate these “no-poaching” agreements. In addition to criminal and civil enforcement by both the state and federal governments, several franchisors are also facing federal class action lawsuits from employees alleging they were adversely affected by “no-poach” agreements.

In 2016, the U.S. Department of Justice (DOJ) first announced its Guidance to Human Resource Professionals, and informed employers that “going forward, the DOJ intends to proceed criminally against naked wage-fixing or no-poaching agreements,” due to antitrust concerns.

More recently, the DOJ reported in its Antitrust Division’s Spring 2018 Update that it intends to aggressively pursue “no poach” and wage fixing agreements. The DOJ Antitrust Division specifically warned: “Market participants are on notice the Division intends to zealously enforce the antitrust laws in labor markets and aggressively pursue information on additional violations to identify and end anticompetitive no-poach agreements that harm employees and the economy.”

“No-poach” restrictions are typically laid out in company-franchise contracts, which often leaves employees unaware of their existence. However, workers have argued that the end result is that they are unable to move from one franchise-owned location to another, where they might be offered a better salary or position.

Applebee’s, Church’s Chicken, Five Guys, IHOP, Jamba Juice, Little Caesars, Panera, and Sonic are the companies that recently agreed to end their “no-poach” agreements in order to avoid lawsuits over the practice.

This comes after seven other restaurant chains earlier agreed to end the same practice—Arby’s, Auntie Anne’s, Buffalo Wild Wings, Carl’s Jr., Cinnabon, Jimmy John’s, and McDonald’s—after the threat of a lawsuit from the Washington state’s Attorney General.

Franchisors who have reached “no-poach” agreements, whether formally or informally, should consult with experienced Franchise and Antitrust counsel to determine how best to mitigate risk and discuss proactive solutions for their business.

COPYRIGHT © 2021, STARK & STARKNational Law Review, Volume VIII, Number 262

About this Author

Tara Speer, Stark Law, Commercial Litigation, Employment Group, New Jersey

Tara A. Speer is a Shareholder and member of Stark & Stark’s Business & Corporate Group, where she focuses her practice in franchise and employment matters. Ms. Speer concentrates her practice on helping franchisors manage all aspects of the franchise relationship including handling state regulations, advising on day-to-day franchise relations, and preparing disclosure documents, franchise agreements, development agreements, management agreements, and supplier agreements.

Ms. Speer also provides employment planning and counseling services to corporate clients. This includes...