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THE LATEST: DOJ Distinguishes ‘No-Poach’ Agreements

WHAT HAPPENED:

  • The Department of Justice filed a Statement of Interest in three related cases in the Eastern District of Washington yesterday dealing with alleged “no-poach” (or non-solicitation) agreements between franchisors like Carl’s Jr, Auntie Anne’s and Arby’s and their franchisees.

  • In the statement, the DOJ distinguished between “naked” no-poach agreements between competitors and the kinds of no-poach agreements in the franchise context that are typically vertical restraints between the parent company and the individual franchisee.

  • According to the DOJ, naked no-poach agreements should be analyzed as per se, or presumptively anticompetitive and illegal under Section 1 of the Sherman Act, while most vertical restraints should be analyzed under the rule of reason which requires some balancing of potential harms and benefits.

  • The statement did, however, distinguish two scenarios where franchise agreements could still merit per se

  • In a situation where the “franchisees operating under the same brand name agreed amongst themselves (and wholly independent from the franchisor), for example, not to hire any person ever previously employed by another franchisee that is a party to the agreement.” Stigar v. Dough Dough, Inc. et al., No. 2:18-cv-00244-SAB, Statement of Interest of the United States of America at 11 (Mar. 7, 2019).

  • In an agreement between a franchisor and franchisee relating to competition in a market where they actually compete. “If operating in the same geographic market, they both could look to the same labor pool to hire, for example, janitorial workers, accountants or human resource professionals. In such circumstances, the franchisor is competing with its franchisee.” If such agreement is not ancillary to any legitimate and procompetitive joint venture, it would warrant per se Id. at 13.

WHAT THIS MEANS:

  • For many franchises, the DOJ’s distinction between “naked” and vertical no-poach agreements will represent welcome respite from the onslaught of class actions that have been filed recently.

  • Franchisors and franchisees, however, will still need to demonstrate any past or future no poach agreements are not (1) between franchisees and independent of the franchisor, or (2) operating in the same geographic market where both entities actually compete.

  • It also remains to be seen whether the court will adopt the DOJ’s view on the topic, and how State Attorneys General will react.

© 2019 McDermott Will & Emery

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About this Author

Nicole L. Castle, Antitrust Attorney, McDermott Will Law firm
Associate

Nicole L. Castle is an associate in the law firm of McDermott Will & Emery LLP and is based in the Firm’s New York office.  She focuses her practice on complex civil and criminal antitrust litigation.  She has extensive experience representing clients in class action antitrust litigations at the trial and appellate level and defending mergers and acquisitions before the U.S. antitrust agencies.  She has also counseled clients on strategies for addressing cartel prosecutions and defenses, from the inception of government investigations to the initiation of civil class action litigation...

212-547-5480
Matt Evola, Associate, Mcdermott Will Emery, Washington DC, Antitrust Lawyer, regulatory, litigation, consumer protection, government investigations, white collar defense
Associate

Matt Evola focuses his practice on antitrust, regulatory and litigation matters. He has additional experience in consumer protection, government investigations, and white collar defense.

During law school, Matt was highly involved in pro bono initiatives, working with the Washington Legal Clinic for the Homeless and DC Law Students in Court. He also acted as senior articles editor for the American Criminal Law Review (ACLR), actively contributing to the publication’s online blog Mens Rea, and as a legal extern to Judge James E. Boasberg of the US District Court for the District of Columbia.

202-756-8766